As managing partner battery companies, Morad focuses on growth and private equity investments in US and European B2B software companies
“Made in America” is back – with a high-tech twist. Between supply chain grunts, the lingering effects of the pandemic and mounting international tensions, experts have been predicting the rise of “reshoring” — a return to domestic production — for some time now. Now the circumstances seem ripe for turning talk into action, and software plays a central role.
This emerged from a Deloitte report from November 2022 62% of US manufacturers have started reshoring or nearshoring production capacity. (“Near-shoring” refers to bringing production closer to end-customer markets, for example to Mexico.) Deloitte predicts that reshoring will reduce China’s world trade growth from 26% to 13% over the next five years.
Census Bureau data confirms the trend: Construction of new manufacturing facilities in the U.S. “reached $108 billion by 2022 … the highest annual total ever — more than was spent to build schools, health centers or office buildings,” according to The Wall Street Journal (subscription required).
Several factors explain the reshoring trend. Covid has exposed the vulnerability of the supply chain, and the disruptions continue. Concern about theft of intellectual property make manufacturers hesitant to produce sensitive high-tech products abroad. International conflicts offer sober lessons about how quickly geopolitical shifts can strain a functioning global system.
Adding to this stew has been recent legislation – the Inflation Reduction Act and the CHIPS and Science Actamong others – require that all or most parts of electric vehicles, energy-efficient equipment, computer chips, and defense equipment be domestically manufactured.
Indeed, reshoring appears to be most popular in complex assembly production of high-tech goods such as defense equipment, EVs and charging stations, servers, medical devices and antennas. In the “old way”, parts had to be shipped worldwide multiple times before assembly could even take place. So it makes both economic and logistical sense to bring the late assembly stage of products closer to end users in North America.
The net result has poised US manufacturers of high-tech products to rebuild domestic factories, particularly in Southern states where union laws favor employers and land and labor costs are lower.
Manufacturing costs in America will likely always be higher than making products abroad, given the higher labor and regulatory costs in the US. But new types of manufacturing-specific software, often referred to as “Manufacturing Operations Management,” are making reshoring more viable for many companies today. Here are three ways software is enabling the rise of reshoring.
1. It automates more tasks in the workplace.
This is perhaps the most obvious advantage that software brings to manufacturing: it enables automation and therefore reduces labor costs. Major international companies such as Siemens, Autodesk and Sandvik are already creating 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 production process. This ranges from streamlined materials management – ensuring raw and in-process materials are efficiently managed in factories, including inventory – to “digital manufacturing engineering,” which enables manufacturers to rapidly design and implement new manufacturing processes.
Another emerging area is Manufacturing Execution System (MES) software, which provides a new functional layer between existing Enterprise Resource Planning (ERP) systems and process control systems within manufacturing organizations. MES software manages the production of manufactured goods from raw material to finished product, providing analytics that help factory managers fine-tune processes and systems.
For example, an MES system can help minimize waste when cutting sheet metal, or enable manufacturers in highly regulated industries (e.g., food and beverage, electronics, aerospace, and defense) to better meet compliance requirements and customer expectations.
2. It enables the human workforce to communicate.
In today’s smart factories, solving problems means finding new ways to tap into the talents of frontline workers – those best suited to identify new system efficiencies – and finding better ways for employees to communicate.
Companies like Redzone produce software that allows employees to communicate and solve problems through chats, video calls and other digital workflows through mobile devices deployed on factory floors. The software connects frontline workers to managers, enabling faster and faster resolution of issues, and even allows managers to provide digital praise.
This new class of modern production-focused communication tools can also help employees go paperless with safety and compliance audits, prevent equipment breakdowns, and expand their skills with additional training. Improved collaboration through software means more employee engagement and productivity and less turnover. Perhaps most importantly, all employees get a better idea of how their contribution contributes to the company’s goals.
3. It improves product quality.
One of the biggest arguments for reshoring is the superior product quality manufacturers can get from a US facility. Current software also helps ensure quality control in factories: MES solutions, for example, automate production data collection and enable manufacturers to monitor production in real time, enabling them to detect quality problems at an early stage.
This helps manufacturers improve product quality and customer experiences and reduce liability risks. Software can also help optimize the quality of both products and processes by enabling manufacturers to parse increasing volumes of data.
2023 from Rockwell Automation State of Smart Manufacturing report found that a full third of existing production data goes unused and that many manufacturers are unable to use data to make decisions (pg. 29). As we enter the next era known as “Industry 4.0”, the interconnected nature of IoT (Internet of Things) will create even more data and fuel the need for software to collect data from multiple sources, analyze historical trends and then optimize process-based processes. on patterns they identify.
Reshoring for technical products seems to be here to stay, and it is only economically possible thanks to software that facilitates work at every step of the production process.
This material, based solely on the opinion of Morad Elhafed, is provided for informational purposes only, and it is not and should not be relied upon in any way as legal, tax or investment advice or as an offer to sell or solicitation of an offer to purchase an interest in any fund or investment vehicle managed by Battery Ventures or any other Battery entity.