Reshoring: Managing Risks and Building Resilience Closer to Home

Reshoring: Managing Risks and Building Resilience Closer to Home
June 12, 2024 6 mins

Reshoring: Managing Risks and Building Resilience Closer to Home

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Proactive risk management and data-driven reshoring strategies can empower risk managers in logistics companies to navigate supply chain complexities with confidence.

Key Takeaways
  1. Companies are increasingly turning to reshoring strategies in response to factors such as narrowing cost differentials and increasing weather risks in key global locations.
  2. Effective risk management, including the use of data analytics and strategic planning, is crucial in navigating the complexities of reshoring.
  3. Working with a broker can help manage supply chain risks, leverage data-driven insights and access proprietary analytics platforms.

Geopolitical tensions and market disruptions are driving a paradigm shift in global supply chain management. The phenomenon of reshoring, where companies relocate production and supply chain operations closer to home, is gaining traction as organizations seek to mitigate risks and capitalize on emerging opportunities.

One example is the surge in production relocation from China to markets like Mexico and Canada. Automotive manufacturers, particularly in emerging sectors such as electric vehicles and battery technology, are pioneering this shift. In a move that was previously unheard of, 364,000 jobs were reshored to the U.S. in 2022, a 53 percent increase from 2021.1

"With rising geopolitical and market risks, I'm seeing more firms realign their resourcing and production,” says Chris Bhatt, CCO of Aon’s Global Transportation and Logistics. “It's all about enhancing supply chain resilience.”

  • Driving Factors Behind the Shift:

    With elections scheduled in nearly half the world2 in 2024 and an increasing trend toward protectionism, companies’ existing supply chains are facing mounting pressure. The ongoing conflicts in the Red Sea and the Middle East add further unpredictability to global supply chains.

  • Growing Challenges in Asia:

    While manufacturing in China has historically had its share of economic advantages, the narrowing cost gap driven by increasing production costs and geopolitical risks is prompting companies to reassess their options. Moreover, Asia's susceptibility to weather and climate risks adds another layer of complexity to supply chain decision-making.3

  • Supplier Insolvencies:

    Compounding these challenges are the increasing insolvencies of suppliers, particularly smaller ones, and the less robust legal frameworks in certain regions. This may expose companies to risks such as intellectual property infringement.

  • ESG Pressures:

    In response to growing societal and regulatory pressures, companies are also under increasing scrutiny to demonstrate their environmental, social and governance (ESG) commitments, leading to the emergence of green supply chain initiatives.

Quote icon

As countries become more protectionist, risk managers need to strategize what is best for their businesses. There is mounting pressure on existing supply chains, highlighting the necessity for fortified and strategic approaches.

Chris Bhatt
Chief Commercial Officer of Transportation and Logistics, Global

Given these factors, organizations ranked supply chain or distribution failure as the sixth biggest risk they face globally. This necessitates a shift toward fortified, more strategic long-term supply chain management approaches.

“Companies must prioritize resilience, agility and sustainability in their supply chain strategies to effectively mitigate risks and capitalize on emerging opportunities,” says Richard Waterer, Aon’s Global Risk Consulting Leader for Commercial Risk Solutions.

Managing Risks and Building Resilience

With the recent focus on reliability and quality over cost, reshoring continues to gain traction. It brings greater resilience and certainty to supply chains, ensuring products' quality, reliability and cost-effectiveness. It also reduces transit times due to geographical proximity and fosters better collaboration among stakeholders.

Yet, the promise of reshoring must be tempered with a clear assessment of associated risks. “It is crucial for companies to understand that reshoring does not guarantee a risk-free environment,” says Tom O'Donnell, Aon’s Practice Leader for Global Logistics. “These changes require careful planning and implementation over time.”

For instance, building in-house production facilities poses significant risks, including:

  • Project delays
  • System malfunctions
  • Compliance and integrity risks
  • Startup delays
  • Change management challenges
  • Local planning issues
  • Construction-related risks

#6

The sixth highest risk facing businesses today is supply chain or distribution failure.

Source: Aon’s Ninth Global Risk Management Survey

Learn More
Quote icon

Supply chain risk management should be truly enterprise-wide, connecting risk and insurance professionals with senior directors in supply chain, procurement, treasury, strategy and operations around a common set of data and decision-making.

Tom O'Donnell
Global Practice Leader of Logistics

When businesses relocate facilities from Asia to the U.S., further concerns emerge, including technology, talent and skills availability, and labor costs.

“Access to required skills and technology is particularly relevant as it is not always easy to simply hire experienced talent in the location that you want to build,” says Bhatt. “Therefore, having a talent assessment strategy becomes more important.”

Despite proactive measures, supply chain or distribution failures continue to impact businesses. According to Aon’s Global Risk Management Survey, 43 percent of respondents experienced losses due to such failures despite 63 percent claiming to have response plans in place. This underscores the importance of ongoing preparedness and vigilance in mitigating risks associated with reshoring initiatives.

Using Data to Take Action

From geopolitical uncertainties to supply chain disruptions, the transportation and logistics industry must adopt a proactive and dynamic risk management approach. “Risk managers must identify, quantify and manage their exposure across their global supply chain,” says Bhatt. “Using data analytics and investing in new technologies and ways of working will help companies manage volatility and build resilient operations and workforces.”

Strategies for Success

  • Visualize

    • Use of data-driven insights to build visibility into the supply chain is the cornerstone of mitigating risk. Treat supply chain as an enterprise risk, considering the source of risk beyond physical damage to include ESG events, cyber and supplier insolvency.
    • For example, Aon’s analytics platform helps firms visualize how risks are evolving in specific countries, enabling them to select the appropriate mitigation and management strategies.

  • Understand

    • Understand the future landscape of supply chains through forecasting.
    • Assess supplier risks to learn how changes in key suppliers can impact the overall risk landscape.

  • Assess
    • Conduct risk tolerance assessment to establish the parameters in which the organization is comfortable taking supply chain risk and implement supply chain risk management strategies.
    • Map and quantify risks associated with new supply chain configurations, including potential financial impacts such as loss of revenue, loss of attraction and increased cost of working.
  • Improve
    • Optimize inventory levels to mitigate supply chain risks (e.g., maintaining redundant stock).
    • Seek guidance on investment decisions to manage supply chain risks, including options such as purchasing insurance to mitigate identified risks effectively.

+2

Supply chain or distribution failure has risen two ranks compared to the previous survey, reaching its highest ever ranking.

Source: Aon’s Ninth Global Risk Management Survey

Learn More
Aon’s Thought Leaders
  • Chris Bhatt
    Chief Commercial Officer of Transportation and Logistics, Global
  • Tom O'Donnell
    Global Practice Leader of Logistics
  • Richard Waterer
    Global Risk Consulting Leader, Commercial Risk Solutions

1 Reshoring and FDI up 53%, a New Record | STI-SPFA
2 International Elections 2024: What You Need to Know
3 Climate change and extreme weather impacts hit Asia hard

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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