Despite the global economic turmoil of the past two years, we are amidst a once-in-a-generation shift of global manufacturing footprints, and 2023 should continue to be a year of opportunity for manufacturers in the United States. This translates to a lot of sustained site selection activity in the market.
Shutdowns and disruptions caused by the pandemic have forced many manufacturing companies to rethink where and how they do business, with risk mitigation paramount in new location decision-making.
Because of this, regionalization has emerged as a top priority for most companies. Nearly 90% of senior supply chain executives responding to a November 2022 McKinsey study said they expect to pursue some degree of regionalization during the next three years.
A Site Selectors Guild survey published in 2022 supported that concept as the world’s top site selectors revealed that site selection studies for manufacturing operations are pressing on full steam.
As the United States is one of the world’s largest demand markets for both consumer and industrial products, we’re seeing a massive shift to more regional production—nearshoring and reshoring—in North America. Seven out of 10 U.S.-based manufacturing companies are planning to invest in new production capacity closer to their home bases as a result of the global upheavals of recent years, according to a June 2022 Industry Week article.
Companies want to shift production to reduce inefficiencies, supply chain shortages, and transportation costs. This is driven by risk mitigation but made possible by technological advancements replacing low-skill manual jobs with automation.
Despite the strong case for U.S. manufacturing investment, several current dynamic economic variables could disrupt this trend:
Inflation: The Consumer Price Index (CPI) is the highest in four decades. Meanwhile, many input costs for manufacturers have been rising by a much wider margin.
Construction costs are also significantly higher (a recent quote a client received was twice the cost to build a manufacturing plant when compared with the recent past, primarily due to materials costs). Increasing interest rates could also derail some investment plans.
Labor shortages: Manufacturing is critically short of the labor it needs. Even if every skilled worker in America were employed, there would still be 35% more unfilled job openings in the durable goods manufacturing sector than skilled workers capable of filling them, according to a U.S. Chamber of Commerce report.
Energy: Increased automation in manufacturing facilities creates a higher demand for electric power at a time when the United States is attempting to transition to new types of generation. Despite increased demand for renewable energy for many plants, available and reliable electric power capacity and costs will be important drivers for continued new investment.
And with new manufacturing investment activity in the market, it is becoming more challenging to find sites ready for development, with utility infrastructure and an available skilled workforce. This, combined with tight timelines for projects to get up and running, has made site selection searches more complex.
Despite the challenges, regionalization remains a priority for most companies in the coming year. Although global site selection has always been challenging and strategic, it is more important than ever that companies work closely with professional site selection consultants to assist in location strategies and decision-making.