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16 HARTFORDBUSINESS.COM | NOVEMBER 15, 2021 Closer to Home As global supply chains falter, more CT manufacturers consider reshoring operations By Sean Teehan steehan@hartfordbusiness.com Outsourcing work to countries with cheaper labor was all the rage in manufacturing circa 2006, and East Hartford-based Horst Engineering jumped on the trend by starting an operation in Sonora, Mexico. Horst made that move largely in response to customer demand, said Scott Livingston, CEO of the mid-sized maker of precision aerospace components. "We had gotten quite a bit of pressure from large customers to establish a lower-cost operation," Livingston said. By 2015, Horst decided to shut down the 50-person Sonora outpost, and move all of its manufacturing back to the U.S. Today, the company's work is done under one roof in a newly-opened facility on East Hartford's Prestige Park Road. While it was cheaper to manufacture in Mexico, the operation was dogged by quality issues, and an inability to find skilled workers, Livingston said. "That put a drag on any savings that we were benefiting from," Livingston said. "If we were going to struggle with having labor problems … then we might as well do it closer to home." Well before the pandemic, issues like labor instability, tariffs and increasingly protectionist policies in countries around the world had U.S. manufacturers rethinking aughts-era attitudes of outsourcing as a way to lower costs and increase profitability. But supply chain disruptions and transportation difficulties over the past 18 months amid global COVID-19 shutdowns have thrown into sharper focus some of the downsides companies face when they outsource labor and the production of goods to far-flung places. As a result, more companies are thinking about shifting work back home, industry experts say, finding the complications and headaches associated with outsourcing may not justify the return on investment. A survey of global analysts in Aug. 2020, found about 75% of companies were planning to accelerate their reshoring initiatives by building smart factories closer to home, according to professional services firm Deloitte. But experts warn reshoring can be expensive and complicated, and while many companies are thinking about it, far fewer will likely go through with it, creating uncertainty over how much of an economic boon it will be to Connecticut and the country in general. Jeff White, an attorney who chairs the manufacturing practice at Hartford law firm Robinson & Cole, said he thinks most companies moving to reshore operations amid the pandemic would have done so anyway. Things have changed in the past two decades, and some Asian countries that previously had few labor and trade statutes that affected U.S. companies, have tightened up their regulatory regimes, White said. Additionally, weather events and political instability in countries with cheaper labor can stymie overseas operations. "It's possible that people overgeneralized the benefits of outsourcing, and the downsides became more apparent," White said. "After 20 years of outsourcing, people across the board are perhaps more sophisticated about it." Quality issues Livingston said he started feeling pressure from customers to source operations outside the U.S. shortly after the 9/11 terrorist attacks and recession that followed. New technology made it easy to instantly communicate with people anywhere in the world, allowing companies to get real-time updates from operations in different continents. However, Livingston said, cracks in that strategy's foundation became more apparent last decade. "There had been issues in Asia, cost increases in China in terms of the labor rate; shipping started to become costly," Livingston said. "There were a bunch of reasons to be wary of a global supply chain." Quality issues became an issue at Horst's Mexico operation, which, at its peak, produced about 20% of the company's total output, Livingston said. Ultimately, when Horst factored in the extra costs from quality issues, shipping, labor disputes and other problems, the savings didn't look so clear. Today, the company's approximately 90 employees work out of a new 100,000-square-foot factory in East Hartford. After it decided to shutter its Mexico operation in 2015, Horst operated out of three buildings in East Hartford, South Windsor and Lynn, Mass. The company bought the Prestige Park Road building for $1.5 million in 2019, and then gutted and remodeled the then-blighted facility from the ground up, Livingston said. The COVID-19 pandemic slowed the Jeff White Scott Livingston is the CEO of Horst Engineering, which reshored its Mexico operations to a new East Hartford facility. HBJ PHOTO | STEVE LASCHEVER