1. No category

To Offshore or Reshore:
How to Objectively Decide
Harry Moser
President
Reshoring Initiative
MWCC Mid-Atlantic Lean Conference
7-8 November, 2012
The Reshoring Initiative
To Offshore or Reshore:
How to Objectively Decide
Mid-Atlantic Lean Conf.
Harry Moser
President
Reshoring Initiative
Suggested priorities re reshoring
1.
2.
3.
4.
Keep existing domestic sources
Shift outsourcing back
Repurpose offshore own-facility to serve the offshore
market. Incrementally invest domestically to serve domestic
market
Shut offshore own facility. Build new domestic facility.
Definitions

Reshoring/Backshoring/Onshoring/Insourcing:
Bringing back manufacture of products that will
be sold or assembled here.
 Transplants: Similar motivation/economics
 Producing near the consumer!
Geographic sourcing alternatives
The concept also works in other countries
Offshoring: partially herd behavior

A ‘herd’ mentality to participate in the ‘Chinese miracle’
developed among global giant corporations --{Peter Nolan;
University of Cambridge; - 9/03

“There is a herd mentality with OEMs in China —sometimes
it makes sense, sometimes it doesn’t—not always rational
decision…
People tell their bosses what they want to hear—(going to
China) gives a boost to the stock valuation, but you really
have to do the analysis on a case by case basis.”
{Technology Forecasters 10/03
Source: Stone & Associates
Flawed company economic model
60% of manufacturers:
 Apply “rudimentary” total cost models
 Ignore 20% or more of the total cost of
offshored products
Source: Archstone Consulting survey, American Machinist Mag., 7/16/09
“Manufacturing Is Expected to Return to America”
“Renaissance in Manufacturing”
 “We
expect net labor costs for
manufacturing in China and the U.S. to
converge by around 2015”

“take a hard look at the total costs”
Source: Boston Consulting Group press release 5/11 & 4/12
Chinese no longer ”just thankful not to go hungry.”
Source: Michelle D. Loyalka, 2/17/12 NYT
The Industry-Led Initiative Provides







Free Total Cost of Ownership (TCO) Software
for companies and suppliers
Online Library of 300+ reshoring articles
Case Study template for posting cases.
Media coverage of the trend: WSJ, Fox
Business, USA Today, IW, CBS, CNBC, etc.
~100 presentations/year nationwide
Motivation for skilled manufacturing careers
Solutions to major supply chain problems
TCO Estimator benefits



Provides a single TCO for each source
Flexible: values are 100% user selected.
Broad:


29 cost factors.
Via pull down menus you automatically insert:




Current value and 5 year forecast of TCO.
Easy to use:


Freight rates for 17 countries
Duty rates for parts or tools, e.g. molds
Explanations and references to help select values.
Free
TCO Example: a Part
Chinese unit price
U.S. unit price
# units/year
$70
$100
2
Shipments/year
6
product life, yrs
5
Payment on shipment
Quality*
0.5%
IP risk*
1.9%
Innovation*
0.5%
12,000
unit weight, lbs
Packaging*
Product liability risk*
1%
Yes
2%
Trips/yr
2
Carrying cost, rate
22%
Emergency air freight %*
5%
Wage inflation, annual*
8%
Currency appreciation, annual*
5%
* Chinese differential vs. U.S.
TCO Comparison Example
Cumulative Cost by Category
CUM ULATIVE COST BY CATEGORY, YEAR 0: PARTS
CUMULATIVE COST, U.S. $
$110
$100
$90
U.S.
$80
China
$70
$60
ic
Pr
e
G
Co
S
O
d
ar
H
er
th
sk
Ri
COST CATEGORY
ic
eg
t
ra
St
G
en
re
Just using TCO could bring back 25% of offshoring
Comparison
Basis
Price
U.S. % of
China price
or TCO,
average
169%
% of cases
where U.S.
has the
advantage
15%
TCO
96%
56%*
Difference
73%
41%**
* For the 56%, the average U.S. TCO was 32% below China
**Conservatively 25% might return
Source: TCO user database 27 “real” 2012 cases China vs. U.S.
Deming on Total Cost

“End the practice of awarding business on the basis of
price tag. Instead, minimize total cost.”
Source: “4th Key Principle for Management,” Out of the
Crisis, W. Edwards Deming
Offshoring multiplies Waste
Toyota Wastes
Offshoring Contributes
Overproduction
Large batch shipments, filling containers
Waiting
Uncertain delivery/Inconsistent quality, port, customs,
shared “awake time” window for discussions
Transport
12,000 mi. inbound, 6,000 return (boat ½ full)
Overprocessing
More packing and unpacking, customs paperwork,
Inventory
In transit, cycle, safety stock, uncertain delivery and
quality, less ability to see and count
Motion
Increased cost over time – repetitive motion injuries or
additional labor to compensate
Defects
Much higher than local sources, extra inspection of
materials and tolerances, customers unhappy
longer
Offshoring impacts innovation
“exporting manufacturing has a negative impact on the
country's industrial commons, which represents the collective
capability to sustain innovation.”
Professors Gary Pisano and Willy Shih
Harvard Business School
Some Reshorers
Water-heaters
Bringing Production back from China:





Water-heater production
Unionized facility in Louisville, KY
400 jobs, renovated facility
Reasons:
 Tax incentives
 High-tech new model
 Ease of design collaboration with workers: cut cost $20
 2 tier contract
 Chinese cost: -30% becomes +6% considering inventory and delivery
problems
Will move a “significant piece” of appliance production back
Bailey Hydropower




Had 100,000 ft² in Chennai, India
Reshored to Westknoxville, TN
60,000 sq. ft.
Reasons:
Fast delivery vs. 5 wks on the water
 Fewer supply chain problems
 If a quality problem, no more bad units
en-route

Source: Knoxvillebiz.com Ed Marcum 8/7/10
Hydraulic cylinders
Plastics, Cookware
China to Kewaskum, WI
 Reasons:

Gained efficiency through lean manufacturing
 Product delivery time shorter
 Inventory turnover faster

Source: Bringing work back to America
By Don Loepp on September 24, 2008
High-end earphones


China to Manatee County, FL
Reasons:






$100Ks scrap
$Ms lost sales
emergency air freight
costs up
communications: language and time
~daily calls at 11 pm
Glucose monitoring systems



China to Charlotte, NC
Hiring 20
Reasons:




5 month delays replacing defective products
Automation, 40% cost reduction
IP control
Inventory down from $6.5M to $1M
Source: The case for back shoring Joe Kolakowski 1/27/10
Hydraulic die cutting presses
o
From Taiwan to Cincinnati, OH
o
Ability to Control Own Destiny
Warranty Reduced by 90% on Custom Presses
Improved Speed to Market – at Least 30 days
Thus Far Created 17 Jobs
Builds Employee Skills & Morale
Restoring Long-Term “Made in USA” Heritage for Schwabe
Presses
o
o
o


Buttons


China to Clarkesville, GA
Reasons:




Salaries up
Expectations up
Rising Yuan
20-25% of employees did not return from annual holiday
Women’s Apparel

China to Los Angeles, CA
 Reasons:




Quality control
Rising labor and duty
costs in China
Nimble companies are better
able to capitalize on a trend
More sophisticated manufacturing techniques
means production is no longer prohibitively
expensive
Circuit boards





Woodridge, IL
Supplies many AEM members
Had quality issue with a Chinese component
Found local IL source
Result:


Quality problem fixed
Inventory cut by 94%



50% of Frisbee production
China back to CA and MI
8 jobs added
Reshoring is happening!

61% of larger companies surveyed “are considering
bringing manufacturing back to the U.S.” (MIT forum for
Supply Chain Innovation 1Q12)

40% of contract manufacturers have done reshoring
work this year (MFG.com 4/12)
 % of U.S. consumers who view products Made in
America very favorably: 78% (2012) up from 58%
(2010) (AAM June 28-July 2, 2012)
 More likely to buy U.S. product 76%
Less likely to buy Chinese product 57%
(Perception
Research Services Intl. survey 7/12, 1400 consumers)
50,000 Manufacturing Jobs
since Jan 2010!

Reshoring yielded:



About 50,000 manufacturing jobs*
~ 10% of manufacturing job growth since the Jan. 2010 low
~ 100,000 total, including multiplier effect
* Source of estimate: Reshoring Initiative tabulation of jobs listed in 287
Reshoring Library articles, 85% published since Jan 2010
Industries of published cases
Industry
Elec. equip, appliances &
components
Miscellaneous
Transportation equipment
Machinery
Furniture
Computer and electronics
Plastics and rubber
Fabricated metal parts
Clothing and textiles
Food and beverage
Chemicals
Primary metal
Oil & gas
Number
37
33
27
18
11
9
8
6
3
3
1
1
1
SSource: Reshoring Library, July 2012
Source: Reshoring Library, July 2012
U.S. Mfg. Cost Advantage over China for Products Consumed in the China(1)
U.S. Manufacturing
Competitiveness for Exports
290%
0%
-5%
Circle size = U.S.
consumption
Global Leaders
-10%
Food
-15%
Auto Final Assm.
Electrical Eqpmt
Primary Metal
-20%
Computer EqpmtAppliances
-25%
-30%
-35%
-40%
-45%
-50%
Textile Mills
Furniture
Textile Product Mills
Printing
Auto Veh. Parts
Paper
Chemicals
Machinery
Petro/Coal
Electronics
Pharma.
Leather
Apparel
Plastics
Wood Product Fabricated Metal
Other Transp. Eqpmt.
Bev. & Tobacco
Aerospace
Semiconductors
Medical Eqpmt.
-55%
-60%
-65%
Nonmetallic Mineral Product
-70%
U.S. Manufacturing Positional Advantage for Export
1) The U.S. cost advantage represents the labor and logistics costs compared with those of Chinese manufacturers, for products consumed by people in China.
Source: U.S. Census Bureau, Bureau of Labor Statistics, UBS Research, CapitalIQ, Energy Information Administration, World Bank, Eurostat, World Trade Organization,
IRS Statistics, Tauber Institute for Global Operations, Booz & Company
High
U.S. Mfg. Cost Advantage over China for Products Consumed in the US(1)
U.S. Manufacturing Competitiveness in
Domestic Markets
300%
200%
Circle size = U.S.
consumption
Global Leaders
Nonmetallic Mineral Product
Petro/Coal
90%
Regional Powers
80%
Sectors on the Edge
70%
Wood Product
Food
60%
Niche Players
50%
40%
Fabricated Metal
Bev. & Tobacco
30%
20%
10%
Textile Product Mills
Apparel
Textile Mills
Primary Metal
Paper
Chemicals
Plastics
Other Transp. Eqpmt.
*
0%
-10%
-30%
-40%
Machinery
Auto Final Assm.
-20%
Furniture
Leather
Printing
Pharma.
Electrical Eqpmt.
Appliances
Computer Eqpmt.
Aerospace
Electronics
Medical Eqpmt.
Semiconductors
-50%
-60%
-70%
Low
U.S. Manufacturing Positional Advantage for U.S. Demand
1) The U.S. cost advantage represents the labor and logistics costs compared with those of Chinese manufacturers, for products consumed by people in the United
States.
Source: U.S. Census Bureau, Bureau of Labor Statistics, UBS Research, CapitalIQ, Energy Information Administration, World Bank, Eurostat, World Trade
Organization, IRS Statistics, Tauber Institute for Global Operations, Booz & Company
High
Reasons for reported cases
REASON
Wage and Currency Changes
Quality, Warranty, Rework
Delivery
Freight Cost
Travel Cost/Time or Local Onsite
Inventory
Total Cost
Communications
Image/Brand (prefer U.S.)
Loss of Customer Responsiveness
Emergency Airfreight
Difficulty of Innovation/Product Differentiation
Natural Disaster Risk
Price
Green Considerations
Burden on Staff
Product Liability
Personnel Risk
Regulatory Compliance
Source: Reshoring Library 9/12
# of CASES CITED
54
41
38
32
27
25
20
14
12
9
9
6
4
4
4
3
2
1
1
64% of reshoring cases are from China
Country from which
reshored
Number
China
Mexico
Japan
India
Taiwan
Philippines
Canada, Germany, Malaysia
79
18
10
6
5
3
2
Brazil, El Salvador, Indonesia, 1
Singapore, UK
Source: Reshoring Library 9/8/12
Special Relevance to Quality, Process
Improvement and Workforce

By understanding the small TCO gap instead of the large
price gap:



You can justify domestic process improvement, automation, training,
etc.
You do not have to sacrifice quality to seek offshore price.
Recruiting is enhanced as reshoring becomes more visible
Potential for reshored jobs is huge!
(Scenario)
Today: If all companies used
TCO (Reshoring Initiative)
By 2015: If Chinese wage
trends continue (~BCG)
Better U.S. training, process
improvement, automation,
tax rates (~AMP)
End of offshore currency
manipulation
Manufacturing Total
Jobs*
Jobs**
~500,000
1,000,000
1,000,000
2,000,000
2,000,000
4,000,000
3,000,000
6,000,000
* # of jobs is cumulative. ** Assumes a low 1.0 Multiplier Effect.
The fastest and most efficient way to
strengthen the U.S. economy
●Reshoring breaks out of:



The economic zero-sum-game of tax/borrow and spend.
The increases in consumer prices of relying solely on currency
changes.
The waiting-for-policy-decisions problem.
● Assures that the pie grows, to the advantage of all
Americans.
● Grows the pie by taking back what we earlier lost.
● Focuses on the manufacturing sector which has suffered so
many job losses for decades.
● More efficient than exporting, stimulus programs or tax
reductions.
Gaining support in Washington, DC

Commerce Dept:


2012 budget specifies TCO.
Links now:






www.manufacturing.gov
http://nist.gov/mep/reshoring.cfm
Major link on Commerce due soon
4 rounds of free MEP webinars, last 11/29/12
Testified at CJS Congressional hearing on 3/28/12
Calls from:


United States-China Economic and Security Review
Commission
White House National Economic Council
1/11/12 Insourcing Forum
1/11/12 Insourcing Panel
But how do apprenticeships and credentials pay?
What can you do?








Use the tools. Free at www.reshorenow.org
Use our archived webinars to inform staff and customers
Work with groups being trained on TCO, e.g. MEPs
Prepare your workforce forreshoring
Post a link like http://www.pres-flex.com/american-made/
Call on me to speak at: open houses, webinars, sales
and supply chain training sessions
Submit cases of reshoring for publication and posting
using our template. Add visibility to your company,
industry and state
Sponsor
Suggested priorities re reshoring
1.
2.
3.
4.
Keep existing domestic sources
Shift outsourcing back
Repurpose offshore own-facility to serve the offshore
market. Incrementally invest domestically to serve domestic
market
Shut offshore own facility. Build new domestic facility.
Questions!

Who has reshored as OEM or contract manufacturer?
Please:
 See me
 Give me your card marked “cases.”

www.reshorenow.org
A non-profit with 42 sponsors
Platinum
Gold
Gold
Gold
G
Silver
Silver
A non-profit with 42 sponsors
Bronze
BronzeB
ronzeBro
nze
SteeelSStSteeleel
Steel
Iron
Iron
A non-profit with 42 sponsors
Our Newest
BronzeB
ronzeBro
nze
Sponsor:
Help slow the offshoring flood now!
Contact:
Harry Moser
Initiative Founder
847-726-2975
[email protected]
www.reshorenow.org
Recruiting trainees for the skilled manufacturing workforce:
http://tinyurl.com/33vpz9k