Reshoring Scenario Evaluation: How to Simulate Impacts on Tariffs and Operations
Do you want to technically compare reshoring scenarios? We’ll show you how to use flexible models to analyze costs, tariffs, and lead times in the supply chain.
What is reshoring and why is it back at the center of logistics strategy?
Reshoring is the process of bringing back production activities that were previously offshored to the country of origin or nearby regions. This strategy has gained prominence in recent years due to geopolitical factors, disruptions in global supply chains, rising costs in Asia, and the need for greater resilience and control over production.
For decades, many companies moved operations to countries with lower labor costs. However, events like the pandemic, rising tariffs, logistics delays, and volatility in global markets have led many to reconsider those decisions. Today, reshoring is emerging as a viable alternative to improve time-to-market, reduce external dependency, and strengthen the connection with end customers.
Key variables affected by reshoring
The decision to relocate production operations involves evaluating multiple strategic, financial, and operational variables. Each of them directly impacts business results and should be carefully simulated before implementing changes.
Labor costs, tariffs, and duties
One of the main drivers of offshoring was the reduction in labor costs. In a reshoring process, this component tends to increase but can be offset by reduced tariffs, import duties, and international logistics costs.
In addition, changes in trade agreements, protectionist policies, or government incentives can significantly alter the economic balance of the process. Modeling these impacts across different scenarios is crucial for making well-founded decisions.
Lead times and operational flexibility
Relocating production closer to the final market can reduce lead times from weeks to days, enabling faster responses to demand changes. Operational flexibility improves, allowing for shorter production cycles and less inventory.
This agility can become a decisive competitive advantage in industries where customization, seasonality, or speed are critical.
Local infrastructure and production capacity
Not all countries have the same industrial or technological infrastructure. The local ability to absorb production processes, access quality suppliers, and attract technical talent are key factors.
Reshoring scenario evaluation must consider these structural limitations or advantages, which influence both costs and the scalability of the operating model.
How to evaluate reshoring scenarios using flexible models
The complexity of these decisions requires tools that allow comparison of multiple possible configurations, considering dynamic variables and real business constraints.
Discrete event simulation
Discrete event simulation allows for detailed representation of a logistical or industrial operation, including times, resources, queues, material flows, and state changes.
This technique is particularly useful for assessing how reshoring would impact a plant, warehouse, or distribution network, measuring effects on time, costs, productivity, and bottlenecks. Different layouts, shifts, technologies, or demand scenarios can be tested.
Optimization models under multiple constraints
In addition to simulating operations, optimization models help find the most efficient configuration among many possible scenarios, considering capacity, cost, demand, and regulatory constraints.
Applied to reshoring, these models help determine which volumes to relocate, which plants to use, how to supply each region, and which logistics routes to optimize. They can be combined with advanced heuristics for large-scale problems.
Risk and sensitivity evaluation
A proper reshoring scenario evaluation goes beyond average results to include variability and risk associated with different decisions. Sensitivity analysis, Monte Carlo simulations, or pessimistic/optimistic scenarios help understand system behavior under unexpected changes.
This perspective is key to avoiding investments that are only profitable under ideal conditions and to designing resilient supply chains.
Comparison with offshoring and nearshoring scenarios
To justify a reshoring process, it is essential to compare all possible scenarios: continuing offshoring, moving operations to nearby countries (nearshoring), or fully relocating back home.
Decision matrices based on quantifiable outputs
Using decision matrices that compare quantifiable variables such as logistics costs, initial investment, delivery times, expected quality, political risk, and scalability helps make strategic decisions on solid grounds.
These visual tools incorporate multiple dimensions into the analysis and present results clearly for executive decision-making.
Practical cases in industrial companies
Several industrial companies across Latin America, Europe, and the U.S. have started using simulation and optimization tools to evaluate reshoring projects. Some typical cases include:
- Automotive industry: Simulation of supply chains with distributed production in Mexico, the U.S., and China to assess total costs and delivery times.
- Pharmaceutical companies: Risk analysis to relocate critical processes and reduce dependency on active ingredients from Asia.
- Appliance manufacturers: Optimization of local assembly lines versus direct imports from Asia.
These cases show there is no one-size-fits-all answer: the key lies in having adaptable models tailored to each company’s specific conditions.
When is reshoring truly profitable?
Reshoring becomes profitable when the benefits in time, control, quality, and flexibility outweigh increased labor or operational costs. It is also worthwhile when it helps reduce systemic risks, meet local regulations, or better serve the end customer.
However, each case must be analyzed individually. Simulation and optimization tools allow for a technical, quantified analysis aligned with each organization’s strategic goals.