BUSI 613 Week 5 Journal Article Review 4 Example

Journal Article Review: Ellram, Tate and Petersen on Offshoring, Reshoring and the Manufacturing Location Decision

The Article and Its Context

Ellram et al. (2013) wrote at a turning point. For two decades, many American manufacturers had moved production to lower-cost countries, especially China, on the strength of large differences in labor costs. By the early 2010s, wages in coastal China had risen substantially, shipping costs and lead times had become more visible, and some companies were announcing that they would bring production home. The authors asked what factors manufacturers were weighing in deciding where to locate production and whether the offshoring trend was reversing.

Summary of the Article

The authors surveyed supply chain and purchasing executives about the factors that influenced their manufacturing location decisions and how those factors had changed. They found that location decisions were becoming more holistic. Rather than comparing labor costs alone, firms increasingly considered total landed cost, which includes transportation, duties, inventory carrying costs and the cost of longer lead times, as well as quality, protection of intellectual property, the risk of supply disruptions and proximity to customers and markets.

They reported that rising costs in offshore locations, particularly labor and transportation costs, were narrowing the advantage of distant production, and that a growing number of firms were considering bringing production back to their home country or moving it to nearby countries, a strategy often called nearshoring. They also observed that many firms lacked the analytical tools to calculate total costs fully and that decisions were often made on the basis of incomplete comparisons. A common pattern was to compare a supplier's unit price abroad with the cost of domestic production while overlooking freight, duties, inventory in transit, quality problems and the management time needed to oversee a distant supplier. The authors concluded that location decisions should be revisited periodically as conditions change, rather than treated as permanent, and that reshoring was likely to grow for products where total costs and risks favored nearby production.

Analysis and Evaluation

The article's main contribution is to reframe the location decision from a labor-cost comparison to a total-cost and risk assessment. That reframing remains valuable, since many offshoring decisions in the 1990s and 2000s underestimated the hidden costs of distance, such as larger inventories in transit, slower responses to changes in demand and the difficulty of solving quality problems across time zones. The article's lasting point is that a location decision is never only a decision about wages.

The article's limitations come from its method and timing, and both matter for how its conclusions should be used today. Survey responses capture executives' perceptions and intentions, which may overstate actual changes; announcements of reshoring in that period often involved small volumes. The article also treats reshoring as a single phenomenon, which made sense at a time when the trend was new but limits its usefulness for managers choosing among options. Gray et al. (2013) distinguished four forms that differ in ownership and location: in-house reshoring, in which a company moves its own offshore operations back home; reshoring for outsourcing, in which a company moves from its own offshore plant to a domestic supplier; reshoring for insourcing, in which a company moves from an offshore supplier to its own domestic plant; and outsourced reshoring, in which a company moves from an offshore supplier to a domestic supplier. Each form raises different questions about capabilities, costs and relationships, which a single category obscures.

Developments since 2013 have both confirmed and complicated the article's expectations. Freund et al. (2024) studied the effects of U.S. tariffs on Chinese goods imposed in 2018 and 2019 and found that U.S. imports of affected products moved from Chinese suppliers to producers elsewhere, Vietnam and Mexico above all, rather than returning to the United States in large volumes. Their findings suggest that the forces the article identified have led more often to diversification and nearshoring than to reshoring in the strict sense, and that policy, as well as costs, now plays a large role in location decisions.

Connection to the Course Textbook

Young's chapters on globalization and outsourcing provide the frame for judging this article; they present the decision to source or produce abroad as a balance of cost, quality, delivery and risk. The textbook's treatment of total cost of ownership, the idea that the price paid to a supplier is only part of the cost of acquiring a product, is the analytical foundation of the article's argument. Its discussion of global supply chain risks, including currency, political and logistical risks, corresponds to the factors the surveyed executives increasingly considered. The article provides empirical evidence that firms were beginning to apply the textbook's broader view.

Application to Practice

Consider a composite Kentucky manufacturer of plastic and metal parts for household appliances that moved most of its molding work to a contract manufacturer in southern China in 2008. Its main customers are appliance assembly plants in Kentucky, Tennessee and northern Mexico. Applying the article's framework, the company should calculate the total landed cost of each part family, including ocean freight, duties and tariffs, inventory in transit, the safety stock needed to cover long lead times, quality costs and the cost of engineering travel, and compare it with production in Mexico or Kentucky.

For bulky, low-value parts with high freight costs, the comparison is likely to favor a location near the assembly plants, perhaps a contract manufacturer in Mexico, which would be an example of nearshoring rather than reshoring. For small, labor-intensive parts with stable demand, China may remain competitive even after tariffs. Drawing on the typology in Gray et al. (2013), the company should also decide whether to produce in its own facility or with a domestic or Mexican supplier, a choice that depends on its capital and capabilities. Reviewing the decision every two years, as the article recommends, would let the company respond to changes in costs and trade policy. The company should also consider risk explicitly: concentrating all molding with one contract manufacturer in one country exposes it to port closures, tariffs and political tensions, so even if China remains cheapest for some parts, qualifying a second source in Mexico would provide a hedge worth part of the cost difference.

Conclusion

Ellram et al. (2013) showed that manufacturing location decisions were shifting from labor-cost comparisons to holistic assessments of total cost, risk and proximity to customers. Later research shows that these forces have more often produced diversification and nearshoring than large-scale reshoring, and that reshoring takes several distinct forms. The article's central advice, to calculate total costs fully and revisit location decisions regularly, remains sound for any manufacturer with global operations.

References

Ellram, L. M., Tate, W. L., & Petersen, K. J. (2013). Offshoring and reshoring: An update on the manufacturing location decision. Journal of Supply Chain Management, 49(2), 14-22. https://doi.org/10.1111/jscm.12019

Freund, C., Mattoo, A., Mulabdic, A., & Ruta, M. (2024). Is US trade policy reshaping global supply chains? Journal of International Economics, 152, Article 104011. https://doi.org/10.1016/j.jinteco.2024.104011

Gray, J. V., Skowronski, K., Esenduran, G., & Rungtusanatham, M. J. (2013). The reshoring phenomenon: What supply chain academics ought to know and should do. Journal of Supply Chain Management, 49(2), 27-33. https://doi.org/10.1111/jscm.12012