Motivation Behind Reshoring Decisions in Manufacturing

Abstract

Manufacturing location decisions have significant business strategy implications and are often a contested political point (Tate, Ellram, Schoenherr and Petersen, 2013, Jensen, Malesky and Jensen, 2015). Firms are increasingly considering reshoring work either to their home or other countries (Tate, et al 2013). More importantly, many firms are now considering the design of their supply chains, including manufacturing locations, as a dynamic capability (Arlbjorn, 2014). This study investigates the factors firms consider in making decisions to reshore the location of manufacturing work. Ellram, Tate, and Petersen (2013) previously explored the factors involved in companies' decisions on where to locate manufacturing and identified 29 motivational factors. This study seeks to identify the factors considered most important and of greatest risk to manufacturers in making their decisions. These questions led to two propositions dealing with importance and risk. Based on a sample of 300 supply chain professionals the researchers tested these propositions using a fuzzy analytical hierarchy process (FAHP). The research suggests that, consistent with the literature, labor cost is in fact the most important factor in making relocation decisions. Contrary to the literature, however, currency stability (and not country risk) was the factor considered to provide the greatest risk.