The pros and cons of reshoring & modern manufacturing

Mike Williams & Erik Olsen, of insurance company Chubb, discuss the domestic manufacturing industry in the USA, reshoring & the global supply chain

Hello Mike and Erik, please introduce yourselves and your roles. 

Mike Williams, Executive Vice President and Manufacturing Industry Practice Leader for Commercial Insurance, Chubb.”

Erik Olsen, Senior Vice President, Leader, Property Center of Excellence, Chubb.”

 

What did you think about the '2022 Year-End Middle Market Indicator (MMI) for manufacturers' report?

Williams: “The 2022 Year-End Middle Market Indicator (MMI) showed an overriding sense of optimism among middle market manufacturers. In the face of economic uncertainty, more than 75% of respondents agreed that overall performance is better than last year, indicating that inflation, supply chain risk, and the global talent shortages are not enough to stop the strong, steady growth for middle market manufacturers. However, they’re not immune to these risks. Issues like labour shortages and inflation, in particular, will impact their exposure to risk, and hence, how they should be insured.”

Olsen: “The survey confirms that manufacturing companies are looking to improve the resilience of supply chains through “nearshoring,” or moving more of their operations closer to domestic hubs. This is a trend capturing national headlines.”

 

Did the result surprise you?

Williams: “The resilience and optimism reported among middle market manufacturers is somewhat surprising given the fact that many companies are still navigating a talent shortage resulting in longer working hours. That said, the pandemic ushered in a wave of interest in moving supply chains closer to home. This seems to be beneficial for middle market manufacturers in the US, which report more optimism than other industry segments in our survey.”

 

What are the pros and cons of reshoring?

Williams: “Reshoring manufacturing jobs and facilities to the US has several benefits. Beyond creating jobs to stimulate economic growth, it also allows companies to maintain greater control over the production process. Domestic manufacturing also can improve lead times and enable faster responses to changes in the market and emerging trends.”

Olsen: “One overlooked aspect of nearshoring is the risk implications. For example, moving a plant to the southeastern United States may improve supply chain resilience while also increasing exposure to hurricanes. From our position, we’re working with middle market clients to facilitate these moves with the proper assessment of risk.”

 

Tell us about the domestic manufacturing industry in the US.

Williams: “U.S. manufacturing has rebounded as companies have recognized the risks involved in overseas production. While this is a benefit to our communities and supply chain resiliency, it does present a challenge for labour. We’re already seeing a labour market with very little wiggle room, and 46% of manufacturers are forced to respond by taking measures like extending shifts. This can create risk, especially in workplace environments with heavy machinery. These are the types of problems we’re working through with clients investing in domestic manufacturing.”

 

How will this impact the global supply chain?

Williams: “Ideally, the nearshoring phenomenon will improve companies’ ability to deal with shocks. This should help to solidify global supply chains from unforeseen risk.”

 

Tell us about the impact of inflation and rising interest rates on the middle market.

Williams: “Rising interest rates and inflation are having a definite impact – we've seen a substantial number of middle market firms note that they’re looking to reduce capital expenditures, with nearly a third noting they would reduce budgets. With the middle-market making up such a large portion of the economy, these changes will have significant impacts across the country.”

Olsen: “Inflation also has an impact on assets like property valuations. This all comes into play when assessing a company’s exposure to risk and requisite coverage. Even though our data reflects that the majority of the middle market saw the replacement value of covered assets rise under inflation, many others are not fully aware of its impact, nor do they know how it will affect their businesses. This lack of awareness may leave many manufacturers not keeping pace with their values in today’s inflationary environment, leaving them underinsured in a crisis or catastrophic situation that could create significant long-term negative implications. Looking ahead, it will be necessary for insurance leaders to educate and collaborate with manufacturers – the engines of our economies – to minimise the financial cost of inflation and recognise the time it takes to replace buildings or equipment. Companies that act now will be the ones who reap the economic and workforce benefits of a resilient business model.”

 

How can the right insurance coverage help to manage that risk?

Williams: “A good insurer acts as a partner with clients, helping them stay ahead of risks in a way that truly enables growth. There is a great deal of innate risk in manufacturing: machinery can pose physical risks to employees; stockpiling can create property risks; natural disasters can threaten physical assets and operations. The right insurance can spread that risk to other stakeholders, ensuring that middle market manufacturers can deliver quality products on time and invest in their growth.”

 

What do the next 12 months look like for you?

Williams: “We expect it to be a busy year, as middle market manufacturers are bullish on growth. The relationship between insurance coverage and talent should be especially relevant as companies come up with solutions to meet demand amid a very tight labour market.”

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