Schneider Electric Expands North American Manufacturing

Date: Monday, May 15, 2023
Source: Wall Street Journal

Schneider Electric, one of the world’s largest makers of electrical and automation products, is shifting some manufacturing closer to the U.S. from factories in Asia and Europe as it pushes ahead with a regional manufacturing strategy.

The moves are meant to position the France-based company, which makes goods such as light switches, electric-vehicle chargers, home-automation systems and data-center equipment, to meet growing demand in North America and to compete for federal subsidies aimed at expanding manufacturing in the U.S.

Schneider is opening factories in El Paso, Texas, and Monterrey, Mexico, that will make items such as circuit breakers and electrical panel boards, adding to its 35 factories and distribution centers in North America. It also plans to expand its Tlaxcala, Mexico, plant.

The company said it has started working with North American suppliers and is encouraging some of its suppliers elsewhere to set up factories in the region as it builds a local supply chain for materials such as nickel and lithium.

“You have to develop a whole ecosystem of suppliers, service providers, factories, distribution systems, transport guys to be able to support this whole growth journey,” said Javed Ahmad, Schneider’s senior vice president of global supply chain for North America.

The company said it makes more than 80% of the products it sells in the U.S., Mexico and Canada in North America, with the rest made in factories across China, India, Southeast Asia and Europe. It will continue manufacturing in Asia and Europe but aims to have the finished goods go to customers in those regions instead of shipping the products around the world.

“Ideally we would like to do probably 99%” of manufacturing locally, said Makarand Karanjikar, Schneider’s senior vice president of supply-chain deployment for North America. “We have ambition to do the maximum that is possible.”

The company is restructuring its supply chain at a time when many businesses are looking to bring manufacturing closer to the U.S. after disruptions, stockouts and shipping delays during the Covid-19 pandemic highlighted the fragility of far-flung supply chains, said Kamala Raman, an analyst at research firm Gartner.

Geopolitical tensions between the U.S. and China have also prompted concerns from government and business officials about the national-security risks of manufacturing crucial and highly technical items such as semiconductors overseas, Ms. Raman said.

“If companies are not doing this for national-security reasons, they’re doing it to have more flexibility, shorter lead times to customers, lower inventory,” Ms. Raman said. She said government subsidies have helped offset the higher costs of manufacturing in North America compared with China and Southeast Asia.

Some of the world’s largest companies have been revamping their supply chains since the pandemic, adding factories in North America and elsewhere to be closer to customers.

Chip makers including Taiwan Semiconductor Manufacturing Co., Samsung and Intel are building U.S. plants. Automaker Hyundai Motor Group plans to build a plant in Georgia to make electric vehicles. Apple is evaluating moving some of its production away from China, to India and Vietnam, and many of its suppliers have been adding manufacturing facilities close to the U.S.

Mexico has attracted many companies looking to shift production closer to the U.S. due to its proximity as well as the tariff-cutting U.S.-Mexico-Canada trade agreement.

Schneider, which has more than 200 factories around the world, had been moving toward a regional manufacturing model before the pandemic underscored the urgency of the shift, Mr. Karanjikar said.

After the pandemic, he said, the company needed to build shorter supply chains for its products “to be more resilient. That’s what we have been doing now.”

Demand for Schneider’s industrial-automation products and systems that power heavy equipment in North America has been growing as its customers shift their own supply chains.

Schneider’s revenue in North America grew about 25% in the first quarter year-over-year to roughly $3.13 billion, accounting for about a third of its total revenue.

The company is applying for federal subsidies under the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, both of which set aside funding for clean-energy technologies, and the $53 billion Chips Act that offers funding for semiconductor manufacturing. The programs require certain materials to be sourced in the U.S. or North America and products to be made in the region to qualify for subsidies.

Schneider plans to work with at least two suppliers for each of its critical materials, creating redundancy to help shield the company from supply-chain disruptions, Mr. Karanjikar said.

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