Seeing a need for domestically produced wool yarn, entrepreneur Stephenie Anderson has opened a new wool mill in Minnesota. Northern Woolen Mills processes about 100 pounds of finished yarn a day.

Quick question about that sweater or blanket you're clinging to this long winter. Was it "Made in the USA?" And if it's wool, any idea where the yarn came from?

Most wool apparel is manufactured with fine merino wool, which comes from Australian sheep. And global wool production is dominated by that country, as well as New Zealand and China. America ranks 11th in the manufacturing of wool, according to industry data.

It's amid this backdrop that the work of Minnesota entrepreneur Stephenie Anderson stands out.

In the dead of winter in December, Anderson and her eight-employee business flipped the switch on a brand new wool mill that produces bundles of finished wool yarn—something the region hasn't seen in some 50 years. Her business customers, stretching to the East Coast, turn her yarn into blankets, garments and upholstery—all "Made in the USA."

Clearly the American wool supply chain—from sheep to yarn to final product—is leaner than decades past. Most wool from American sheep can be scratchy, not the soft stuff from Australian animals. That difference is because U.S. sheep are raised primarily for food, not their wool. The domestic wool industry is shifting, if ever so slightly on a small scale.

Domestic textile innovations allow for the creation of softer fibers made with tougher yarn. More small- to mid-sized businesses are realizing it's no longer cost effective to outsource materials and business to other countries, including China. So through a word-of-mouth network of yarn producers, spinners and dyers, scrappy entrepreneurs are keeping the "Made in USA" wool tradition alive—and in some cases sparking growth.

(Read more: 'Made in USA' fuels new manufacturing hubs in apparel)