As a general partner at Battery Ventures, Morad focuses on growth and private equity investments in U.S. and European B2B software companies
“Made in America” is back—with a high-tech twist. Between supply-chain snarls, the pandemic’s lingering effects and growing international tensions, pundits have predicted the rise of “reshoring”—returning to domestic manufacturing—for a while. Now conditions seem ripe for talk to become action, and software is playing a pivotal role.
A November 2022 Deloitte report revealed that 62% of U.S. manufacturers have begun either reshoring or near-shoring production capacities. (“Near-shoring” refers to bringing manufacturing closer to end customer markets, for instance, to Mexico.) Deloitte predicts that reshoring will reduce China’s global trade growth from 26% to 13% in the next five years.
Census Bureau data confirm the trend: Construction of new manufacturing facilities in the U.S. “reached $108 billion in 2022…the highest annual total on record—more than was spent to build schools, healthcare centers or office buildings,” according to The Wall Street Journal (subscription required).
Multiple factors explain the reshoring trend. Covid revealed the supply chain’s fragility, and disruptions still persist. Concerns about intellectual property theft make manufacturers hesitate to produce sensitive high-tech products overseas. International conflicts provide sober lessons in how rapidly geopolitical shifts can strain a functioning global system.
Added to this stew is recent legislation—the Inflation Reduction Act and the CHIPS and Science Act, among others—requiring that all or most parts of electric vehicles, energy-efficient equipment, computer chips and defense equipment be manufactured domestically.
Indeed, reshoring is proving to be most popular with complex assembly manufacturing of high-tech goods like defense equipment, EVs and charging stations, servers, medical devices and antennae. The “old way” required shipping parts multiple times globally before assembly could even happen. So it makes both economic and logistical sense to bring the late assembly stage of products closer to end consumers in North America.
The net result has U.S. manufacturers of high-tech products ready to rebuild domestic factories, particularly in southern states where unionization laws favor employers and land and labor costs are lower.
The costs of manufacturing in America will likely always be higher than making products abroad, given the U.S.’s higher labor and regulatory costs. But new types of manufacturing-specific software—often dubbed “manufacturing operations management”—are making reshoring more viable for many companies today. Here are three ways software is enabling reshoring’s rise.
1. It automates more tasks on the factory floor.
This is perhaps the most obvious benefit software brings to manufacturing: It enables automation and, therefore, reduces labor costs. Major global companies like Siemens, Autodesk and Sandvik already make software, including CAD/CAM technology and robotics, to automate core manufacturing processes.
But other, smaller companies are introducing innovative technology that touches all aspects of the manufacturing process. This ranges from lean materials management—making sure raw and in-process materials are managed efficiently in factories, including in inventory—to “digital-manufacturing engineering,” which helps manufacturers quickly design and implement new production processes.
Another emerging area is MES (manufacturing execution system) software, which sits as a new, functional layer between existing ERP (enterprise resource planning) and process-control systems inside manufacturing organizations. MES software manages the production of manufactured goods from raw material to finished product, yielding analytics to help plant managers fine-tune processes and systems.
An MES system can help minimize waste while cutting sheet metal, for example, or allow manufacturers in highly regulated industries (e.g., food and beverage, electronics, aerospace and defense) to better meet compliance requirements and customer expectations.
2. It allows the human workforce to communicate.
In today’s smart factories, problem-solving means finding new ways to tap the talents of front-line workers—those who are best suited to identify new system efficiencies—and finding better ways for workers to communicate.
Companies like Redzone produce software that helps workers communicate and solve problems via chats, video calls and other digital workflows through mobile devices deployed on factory floors. The software connects frontline workers with managers, allowing for quicker, on-the-fly problem-solving, and even allows managers to deliver digital kudos.
This new class of modern manufacturing-focused communication tools can also help workers go paperless with safety and compliance audits, prevent equipment breakdowns and expand their skills with additional training. Improved collaboration via software means improved employee engagement and productivity and reduced churn. Perhaps most importantly, all workers gain an expanded sense of how their contribution advances the company’s goals.
3. It enhances product quality.
One of the biggest arguments for reshoring is the superior product quality manufacturers can get at a U.S. facility. Today’s software is helping ensure quality control in factories, too: MES solutions, for example, automate production data collection and allow manufacturers to monitor production in real time, enabling them to detect quality issues early on.
This helps manufacturers improve product quality and customer experiences, as well as decrease liability risks. Software can help optimize the quality of both products and processes, too, by enabling manufacturers to parse ever-increasing reams of data.
Rockwell Automation’s 2023 State of Smart Manufacturing Report found that a full third of existing manufacturing data goes unused, and many manufacturers lack the ability to use data to make decisions (pg. 29). As we move into the next era known as “Industry 4.0,” the interconnected nature of IoT (Internet of Things) will create even more data and fuel a need for software to aggregate data from multiple sources, analyze historical trends and then optimize processes based on patterns they identify.
Reshoring for tech products seems here to stay, and it’s only possible economically thanks to software that facilitates work at every step in the manufacturing process.
This material, based solely on the opinions of Morad Elhafed, is provided for informational purposes, and it is not, and may not be relied on in any manner as, legal, tax or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any fund or investment vehicle managed by Battery Ventures or any other Battery entity.
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