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Ally-Shoring: An Answer To The Manufacturing Labor Crisis

By News Creatives Authors , in Leadership , at October 30, 2021

Record high shipping backlogs are making international news. As organizations rethink their supply chain strategy amidst a global crisis, boardroom discussions are centering on shifting manufacturing in-house or closer to home.

 The Brookings Institution, a non-profit think tank based in Washington DC, suggests ally-shoring as a solution. 

Ally-shoring has recently taken hold as a collaborative twist on the concept of nearshoring. It is a relatively new concept promoted by the US-Mexico Foundation and Brookings to strengthen and deepen joint manufacturing, R & D, trade, security, and governance ties between the US and Mexico. Ally-shoring is the process by which a country rethinks manufacturing and critical supply chains by sourcing  essential materials, goods, and services among trusted democratic partners.

 A recent Brookings article detailed the importance of supply chain resilience and described where ally-shoring fits into that model: “We do need more domestic production and more of the high-paying jobs that go along with it—but we won’t get there by going it alone. That’s because pivoting supply chains back home is not always realistic; we rely on components and materials from many parts of the world. There is a better way forward, and it starts by selectively leaning into our trade and co-production relationships with friends and allies we trust—what we call ‘ally-shoring.’”

 Ally-shoring recently got a boost from the White House to help rectify the supply chain issues and workforce shortages that have emerged as a result of the pandemic.  

 But these issues are nothing new. Manufacturing labor shortages have been a growing problem for several years, fueled by an aging workforce. One-fourth of manufacturing workers are 55 or older. Combine that with the reality that millennials, for the most part, are not interested in manufacturing jobs, and an already strained supply chain approaches its flash point.  At the same time, the demand for manufactured goods is skyrocketing. Something must be done to address this disparity. As many as 2.1 million manufacturing jobs will go unfilled through 2030, according to a study published by Deloitte and The Manufacturing Institute. The report warns that the worker shortage will hurt revenue, production, and could ultimately cost the US economy up upwards of  $1 trillion by 2030.

 Nearshoring to Mexico has been around for a long time. In fact, it got a kickstart in the 1960’s with a concept known as Maquiladoras, in which US-based manufacturing companies opened plants located in the border towns of northern Mexico. 

 Since then, US companies, including P&G, Honeywell, Johnson & Johnson, Ford, Nissan, Toyota, LG, Whirlpool, and other big names have been manufacturing in Mexico for years. 

The primary reason? Mexico’s low operating costs, abundant labor force, and close proximity to US and Canadian markets. 

 Yet, setting up manufacturing operations in Mexico is a highly complex and sometimes overwhelming process. Among the challenges are location; workforce availability; reliable local expertise; unions; ever-changing regulatory compliance; and legal, tax, and business ramifications.  

 Partnering with a shelter services company simplifies the process of ally-shoring. Shelter services companies are growing in popularity with medium- and small-sized manufacturers who can open a satellite location in Mexico quickly and efficiently by collaborating with enterprises designed to address their needs. 

Dave Vrioni, President and Chief Operating Officer of Eastek International explained why Eastek recently chose to expand to Mexico. Quoted in an IndustryToday article, Vrioni said, “For my company and many others, China manufacturing looks less competitive than it once did.  Labor, freight, rent, tariff, and compliance costs have all gone up, some significantly. Intellectual property concerns have yet to be resolved.” 

 For Eastek, the expansion was the choice to develop a strategic relationship with The Entrada Group versus investing in their own greenfield. “Working with a strategic partner like Entrada Group allowed us to cut the ribbon on our first facility just six months after signing the contract. The speed was impressive considering we now have a world-class facility, a skilled labor force, and all the corporate infrastructure we need in Mexico, along with the means to scale as necessary.” 

Paul Karon, co-founder of The Entrada Group, believes a collaborative, cost-effective base of operations is ideal for first-time companies looking to manufacture in Mexico. 

 Karon also believes that ally-shoring is a solution to the labor shortage: “While the average age of manufacturing workers in the US is 55, on our two manufacturing campuses in Mexico we have over 5,000 workers and their average age is 27. Unlike US millennials, millennials in Mexico embrace manufacturing jobs and are willing to do the work.” 

The Bottom Line

 Manufacturing in Mexico is on the rise for a reason. With unprecedented demand and an insufficient domestic workforce, ally-shoring in Mexico is an attractive solution for manufacturing companies.

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