An increasing number of major companies are shifting their manufacturing operations back to the U.S. and nearby Mexico in response to a volatile global supply chain landscape.
The domino effect of the COVID-19 pandemic, geopolitical tensions and rising transportation costs has prompted businesses to rethink their reliance on global supply networks. This remains true despite rising labor costs in both the U.S. and Mexico. Labor costs are also rising outside of North America, reducing the benefits of offshore production. At the same time, manufacturing talent is declining across the globe.
The main takeaway from these trends is that companies simply have more control over supply chains that are closer to end markets. For example, a company sourcing a widget from the U.S. or Mexico has multiple expedited modes of freight to choose from, and the sources and destinations are closer together. These advantages outweigh the few cents that the company would save by sourcing the widget from Asia.
Companies like The LEGO Group and La-Z-Boy are among the latest to announce plans to relocate manufacturing to, or expand in, their home markets, in an effort to improve supply chain resilience and better manage risk.
The Global Supply Chain Conundrum
The global supply chain model, long praised for its cost efficiency, has experienced significant strains in the past few years. Dependence on offshore production, particularly in Asia, has historically provided cost advantages for manufacturers in the form of lower labor and production costs.
However, worldwide disruptions like the COVID-19 pandemic and rising inflationary pressures have exposed vulnerabilities in this strategy. Companies have increasingly faced delays in shipments, production bottlenecks, and soaring shipping fees, all of which drive up overall operational expenses. In addition, factors such as international trade tensions, the rising cost of raw materials, and fluctuating exchange rates have further exacerbated the instability. Companies are working to reduce their exposure to these disruptions by reconsidering where and how goods are produced.
The LEGO Group Comes to the U.S.
The LEGO Group, the global toy giant known for its colorful stackable plastic bricks, announced in 2022 that it would be building a new manufacturing plant in the U.S. Slated for construction in Virginia, this $1 billion factory represents a significant shift in LEGO’s manufacturing strategy. Historically, the company has maintained large-scale production in Denmark, Mexico, Czech Republic, China and Hungary.
This U.S. plant will help LEGO reduce the complexity of its global supply chain and meet rising demand in North America. While it already has a factory in Monterrey, Mexico, adding a facility closer to its core markets aligns with its goals of ensuring shorter lead times and improving supply chain control.
This project not only enhances LEGO’s ability to adapt quickly to local market demands, but also reduces environmental impact by cutting down on long-distance shipping. LEGO’s chief executive officer Niels B. Christiansen has emphasized that the plant’s location supports sustainability and access to transportation network, saying: “The location in Virginia allows us to build a solar park which supports our sustainability ambitions and provides easy links to country-wide transportation networks. We are also looking forward to creating fantastic employment opportunities for the people of Virginia.”
La-Z-Boy: Reshoring and Reclining
The American furniture manufacturer La-Z-Boy is another example of a company opting to bolster its onshore production capabilities. Known for its signature recliners and home furniture, La-Z-Boy has relied on a combination of U.S.-based and overseas manufacturing. However, the disruptions caused by the pandemic and increasing consumer demand for home furnishings have motivated the company to reinvest in its U.S. operations.
In 2022, La-Z-Boy increased production at its domestic facilities. The measures taken by the company included the addition of second shifts and weekend shifts to its U.S. plants, and the reactivation of a portion of its upholstery manufacturing facility in Mississippi. As a result, the company was able to reduce lead times for customized products to 10 to 14 weeks; from a high of four to seven months at one point during the supply chain crisis.
Even as economic conditions have continued to shift, La-Z-Boy has stressed the importance of this strategy. CEO Melinda Whittington notes that La-Z-Boy’s North American manufacturing footprint is a “key differentiator” for production.
The Pros and Cons of Onshoring
Every company needs to weigh the pros and cons with its own cross-functional team. Onshoring offers several key advantages to those seeking greater control over their supply chains, but it comes with some disadvantages.
For example, conducting manufacturing operations in the U.S. requires compliance with several labor laws and regulations, including the Occupational Safety and Health Act. This act alone contains thousands of regulations which apply to all general industries, and compliance typically involves significant investments in programs and personnel. In addition, if the raw materials needed for a company’s operations aren’t found in the region, it will face increased costs associated with the transportation and importation of those materials. Companies should analyze these and other factors from a holistic, strategic perspective that focuses on their unique business attributes.
The Future of Onshoring
As the global business environment continues to shift, more companies are likely to follow in the footsteps of LEGO and La-Z-Boy by bringing parts of their production closer to their core markets. Onshoring isn’t just a response to temporary disruptions; it’s part of a broader strategy to build long-term resilience into business operations. Companies that are able to strike the right balance between cost efficiency and supply chain reliability will be well-positioned to thrive in an increasingly uncertain world.
For businesses, the message is clear: supply chain flexibility and security have become critical competitive advantages.
Vanessa Miller is a litigation partner with Foley & Lardner LLP, and chair of its Manufacturing Sector. Kate Wegrzyn is a partner, business lawyer and chair of the firm’s Supply Chain Team. Patrick Taylor is an associate with Foley & Lardner.