Procurement Glossary
Onshoring: relocation of production back to the home country
November 19, 2025
Onshoring refers to the strategic relocation of production or service activities from abroad back to the company's home country. This procurement strategy is becoming increasingly important as companies seek to make their supply chains more resilient and reduce dependencies on international markets. Find out below what exactly onshoring means, what methods are available and how current developments are affecting procurement.
Key Facts
- Onshoring reduces transportation costs and shortens delivery times thanks to geographical proximity
- Higher labor costs are often compensated by better quality control and lower logistics costs
- Political stability and legal certainty in the home country minimize regulatory risks
- Improved communication through common language and time zone increases efficiency
- Sustainability aspects are supported by reduced CO2 emissions in transportation
Contents
Definition: Onshoring
Onshoring involves the systematic relocation of business processes, production or services back to a company's home country.
Key aspects of onshoring
The key characteristics of onshoring encompass several strategic dimensions:
- Relocation of outsourced activities back to the home country
- Development of local production capacities and supplier networks
- Reducing dependence on international markets
- Strengthening regional value creation
Onshoring vs. other sourcing strategies
In contrast to offshoring and nearshoring, onshoring focuses on the complete return to the home market. While nearshoring favors geographically close countries, onshoring completely eliminates cross-border complexities.
Importance of onshoring in Procurement
For the procurement strategy, onshoring means a fundamental realignment of the supplier base. Security of supply is strengthened through local partnerships, while at the same time new challenges arise in terms of cost optimization.
Methods and procedures
The successful implementation of onshoring requires structured approaches and proven methods for evaluation and implementation.
Strategic evaluation procedures
A well-founded market analysis forms the basis for onshoring decisions. Companies carry out total cost of ownership analyses that take all direct and indirect costs into account:
- Comparison of labor costs between home and foreign locations
- Evaluation of transportation costs and logistics expenses
- Analysis of regulatory and political risks
- Quality assessment and compliance requirements
Implementation strategies
The practical implementation usually takes place step by step through supply base optimization. Companies develop local supplier networks and build up production capacities.
Risk management and control
Effective supply chain resilience management accompanies the onshoring process. Continuous monitoring of key performance indicators and regular adjustments to the strategy ensure long-term success.
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Key figures for managing onshoring
Successful onshoring initiatives require continuous measurement and evaluation through meaningful performance indicators.
Cost ratios
Total Cost of Ownership (TCO) is the most important key figure for onshoring decisions. It includes all direct and indirect costs:
- Production costs per unit (material, labor, overhead)
- Logistics and transportation costs
- Quality costs and rework costs
- Compliance and regulatory costs
Supply chain performance
Delivery times and flexibility are typically improved by onshoring. Delivery capability is strengthened by geographical proximity and better communication. Key metrics include delivery reliability, lead times and speed of response to changes.
Risk and resilience indicators
The degree of diversification of the supplier base and regional risk distribution measure the resilience of the supply chain. Supply chain resilience indicators assess the ability to recover quickly from disruptions.
Risk factors and controls for onshoring
Onshoring strategies entail specific risks that must be minimized through appropriate control mechanisms and preventive measures.
Cost risks
Higher labor costs in the home country can affect competitiveness. A detailed product calculation is essential in order to identify hidden cost drivers:
- Wage cost increases exceed savings in transportation and logistics
- Investments in new production facilities burden liquidity
- Qualified workers may not be available
Capacity and delivery risks
Building up domestic production capacities takes time and can lead to temporary supply bottlenecks. Demand planning and transition strategies are critical for continuity.
Market and competitive risks
A limited local supplier base can lead to dependencies and reduced scope for negotiation. Multiple sourcing strategies help to diversify these risks and ensure security of supply.
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Practical example
A German automotive supplier relocated the production of critical electronic components from Asia back to Germany. The decision was based on a comprehensive TCO analysis that weighed higher labor costs against reduced logistics costs and improved quality control. Investments in automation compensated for the labor cost disadvantages.
- Reduction in delivery times from 8 to 2 weeks
- Reduction of quality defects by 60% through better process control
- Increased flexibility for product changes and custom-made products
Current developments and effects
Global events and technological advances are reinforcing the trend towards onshoring and changing the framework conditions for procurement decisions.
Geopolitical influences
Trade conflicts and political instability are accelerating onshoring initiatives. Companies are consciously reducing their dependence on volatile markets and strengthening domestic production. The Supply Chain Act is also increasing the pressure for transparent and controllable supply chains.
Technological enablers
Automation and AI in Procurement significantly reduce the labor cost disadvantages of domestic production. Modern manufacturing technologies enable cost-efficient local production, even in high-wage countries:
- Robotics and automation compensate for higher labor costs
- Digital twins optimize production processes
- Predictive analytics improve demand planning
Sustainability aspects
Environmental awareness and ESG criteria promote onshoring decisions. Reduced transportation routes lower CO2 emissions and support sustainability goals. Supply chain visibility is significantly improved through geographical proximity.
Conclusion
Onshoring is evolving from a reactive measure to a proactive procurement strategy that prioritizes resilience and control over cost benefits. Successful implementation requires holistic TCO considerations and the use of modern technologies to compensate for cost disadvantages. The strategic importance of onshoring will continue to increase due to geopolitical uncertainties and sustainability requirements.
FAQ
What is the difference between onshoring and reshoring?
Onshoring and reshoring are often used interchangeably, but both refer to the relocation of business activities back to the home country. Reshoring emphasizes the aspect of bringing back processes that have already been outsourced, while onshoring can also include the initial establishment in the home country.
Which sectors benefit most from onshoring?
Industries with high quality requirements, short product life cycles or critical supply chains benefit particularly from onshoring. These include the automotive industry, medical technology, electronics and mechanical engineering, where flexibility and quality control are crucial.
How do you calculate the profitability of onshoring?
Profitability is determined using total cost of ownership analyses, which take all cost factors into account: Labor costs, transportation, quality, risks and opportunity costs. Qualitative factors such as flexibility, control and strategic advantages are also included in the assessment.
What risks does onshoring entail for companies?
The main risks include higher production costs, limited choice of suppliers, capacity bottlenecks and investment risks when setting up new sites. Companies must weigh up these risks against the benefits of improved control, quality and security of supply.
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