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Western Colorado Manufacturing Summit
To Offshore or Reshore? How to Objectively Decide
Millar Kelley
Research
Analyst/Consultant
Definitions
Reshoring/Backshoring/Onshoring/Insourcing:
Bringing back manufacture of products that will
be sold or assembled here.
 Similar logic:
 Transplants/FDI
 Producing near the consumer!

Geographic sourcing alternatives
The concept also works in other countries
History: Why offshoring occurred
• Cheap labor
• More efficient container shipping
• Improved communication and data
sharing
• Herd mentality in which companies
followed each other offshore
Corporate expectations of offshoring:
• Achieving lower prices for customers
• Pursuit of greater profit margins
History: Why reshoring is happening
Drivers:
• Total Cost of Ownership (TCO) – Includes
costs, risks, and strategic factors that were
ignored over the past few decades
• Higher wages in China
• Higher global energy prices driving up shipping
cost
TCO = more obvious costs + “hidden”’ costs
Total cost = true cost
Reshoring is the logic of local sourcing
TCO is the methodology you use to decide what to reshore
Flawed company economic model
60% of manufacturers:

Apply “rudimentary” cost models
Wage Arbitrage
 PPV (Purchase Price Variance)
 Landed Cost


Ignore 20% or more of the total cost of
offshored products
Source: Archstone Consulting survey, American Machinist Mag., 7/16/09
Advantages of Reshoring
Benefits to Businesses
-Refocusing on world’s largest consumer market (ours)
• Replace the imports!
• Our companies are more competitive here than
in China
• 20-40% cost advantage here versus exporting
to China
-Appeal to consumer demand for “Made in USA”
•
Improved quality – perceived and real
-Better long-term corporate stability, internally and
through your customer base
Advantages of Reshoring
Benefits to the Nation
Reshoring improves:
-Trade deficit
-Economy (not direct hard cost, but externality)
-Job multiplier effect (potentially 7-8 million more
jobs added)
-Green footprint
-Business ecosystem: infrastructure, skilled
workforce, innovation
Indexed Unit Labor Costs in the Manufacturing
Sector of Selected Countries
10
“Manufacturing Is Expected to Return to America”
“Renaissance in Manufacturing”

Chinese labor cost/hour up dramatically
 Adjust for Chinese productivity still only 1/3 of U.S.
 Means: Chinese labor cost/unit of output is getting
close to U.S.
 “Hidden costs” will close the remaining gap by about
2015 for a range of industries
Source: Boston Consulting Group press release 5/11 & 4/12
The Industry-Led Reshoring Initiative
Provides:
Free Total Cost of Ownership (TCO)
Software for companies and suppliers
 Online Library of 1000+ reshoring
articles, with an Advanced Search
feature
 Motivation for skilled manufacturing
careers
 Economic development plan based on
local sourcing
 Case Study template for posting cases

Manufacturing is Cool!
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:
Freight rates for 17 countries
 Duty rates for parts or tools, e.g. molds

Current value and 5-year forecast of TCO
 Easy to use:
 Explanations and references to help select
values.
 Instructions
 Free

TCO Comparison Example
Present and Forecast US and China Price and TCO (US$)
$140
$120
$100
$80
$60
$40
$20
$Year 1
US TCO
Year 2
China TCO
Year 3
US Price
Year 4
China Price
Year 5
Even Landed Cost Misses a lot of TCO
120%
100%
13%
23%
80%
60%
100%
40%
87%
77%
20%
0%
TCO
LANDED COST
PURCHASE PRICE
16
61% of reshoring cases are from China
Country from which reshored
China
Mexico
Japan
Number
105
21
12
India
Taiwan
Canada, Spain
Germany, Malaysia, Philippines
8
5
3 each
2 each
1 each
Brazil, El Salvador, Indonesia, Hungary,
Singapore, UK, Venezuela, Guatemala,
Malaysia
Source: Reshoring Library 3/16/13
Cited Reasons for Reshoring
REASON
# of CASES CITED
Wage and Currency Changes
Quality, Warranty, Rework
Freight Cost
Delivery
Travel Cost/Time and Onsite
Carrying Cost of Inventory
Intellectual Property Loss or Risk
Total Cost
Communications
Image/Brand (prefer US)
Difficulty of Innovation/Product Differentiation
Loss of Customer Responsiveness
Price
Natural Disaster Risk
Green Considerations
Government Incentives
Burden on Staff, Political Instability,
Personnel Risk, Regulatory Compliance
72
51
44
43
38
26
25
22
20
17
10
9
7
6
4
4
3 each
Reshoring Library 3/13
Industries of published cases
Industry
Number
Elec. equip, appliances & components
Transportation equipment
Computer and electronics
Machinery
Miscellaneous
Plastics and rubber
Fabricated metal parts
Furniture
Clothing and textiles
Food and beverage
46
34
25
21
19
16
16
12
4
4
Primary metals
2
Library, July 2012
Source: Reshoring Library, March 2013
Industries of published cases
Nike, Michael Schmidt, TSDesigns
Some Reshorers, out of 500+ known
Water Heaters
Bringing Production back from China:




Water-heaters, fridges, and washing machines
Unionized facility in Louisville, KY
1300 jobs, renovated facility, $800 million invested
Reasons:
Tax incentives
 High-tech new model
 Ease of redesign collaboration with workers: because they
simplified the design so much, able to sell for 20% less at
retail
2 tier contract
 Chinese manufacturing cost lower, but total cost higher

Will move a “significant piece” of appliance
production back
Jet engine with fuel nozzles
• $100 million assembly plant in
Indiana, USA by 2016
• 200 jobs added by 2020
• Produced by additive
manufacturing/3D/advanced
manufacturing
• 5x as strong, 2x lighter, more efficient
• Already has 6000 confirmed orders
valued at $78 billion
• 1 Billion/yr invested in R&D
Source: http://www.ipmd.net/news/002640.html
Injection-Molded Plastics
● Denver, CO
● Contract manufacturer benefited from reshoring
● $2 million investment in machinery
● 200 employees
● Reasons customers reshored from China
●“Cradle to grave” service
●R&D
●Lean
●Supply Chain Interruption Risk
●Higher productivity
Sources: http://bluetoad.com/publication/?i=172739&p=10
http://plasticsnews.com/headlines2.html?id=24393
http://www.plasticstoday.com/articles/intertech-adds-two-presses-central-chiller-response-reshored-business022520131
Maresco- Consultant
● Large company buys small company and offshores
production to Malaysia
● Under competitive pricing pressure and customer satisfaction
problems
● learn challenges with the process, supply chain, and
administrative
● improved delivery lead-times, delivery consistency, material
quality. Designed new automated calibration station with
manufacturing, engineering, sales, and suppliers of parts
(whole team)
● RESULTS:
+6 months Lead-time cut to 72 hours, 95% of production transferred from
Malaysia to US
+12 months The firm increased sales by 530%, Gross margins improved by
21% , Productivity improved by 300% http://macresco.com/portfolio-items/reshoring-margin-growth/
Aircraft
(Transplant)
●Germany to Montrose, CO
●200 jobs
Sources: http://www.areadevelopment.com/newsitems/7-27-2010/extra-montrose-colorado-aircraft07272.shtml
Wind Turbine Assembly
(Transplant)
●China to Henderson, NV
●1000 jobs
●“Multi-million” dollar investment
●Reasons:
 Lower real-estate cost
 Skilled workforce
●"We are committed to clean energy
development ...A-Power highly values the
opportunities in renewable energy in America."
Sources: http://www.areadevelopment.com/newsitems/5-2-2011/apower-wind-turbine-assembly-nevada-5555002.shtml
http://www.prnewswire.com/news-releases/the-us-renewable-energy-group-a-power-energy-generation-systems-ltd--american-nevadagroup-to-develop-a-wind-turbine-production-and-assembly-plant-expected-to-create-more-than-1000-jobs-in-nevada-87326867.html
Fruit Products
(Transplant)
●Portugal to Rupert, ID
●100 jobs
Sources: http://www.areadevelopment.com/newsItems/10-16-2013/frulact-group-first-us-processing-rupert-idaho189012.shtml
http://www.kmvt.com/news/breakingalert/Frulact-Group-Opening-Processing-Facility-In-Rupert-228030151.html
Socks/Hosiery: Zhejiang Walt
Technologies
(Transplant)
●China to Cache County, UT
●130-150 new jobs
●$4 million investment
●Reasons:
●Tax incentives
Sources: http://www.areadevelopment.com/newsItems/12-13-2013/zhejiang-walt-technologies-operations-center-expansion-cache-valleyutah123893.shtml
$50 Billion… just a starting point

The company says the $50 billion is just a starting
point. If other retailers joined the party the figure
could be much, much higher, perhaps $500 billion.

Walmart’s U.S. president, Bill Simon, suggested in
a speech to fellow retailers that the power of their
order books can help reshore U.S. production in
textiles, furniture, pet supplies, some outdoor
categories, and higher end appliances.
http://business.time.com/2013/04/12/how-walmart-plans-to-bring-backmade-in-america/#ixzz2VpVYk5dB Bill SaporitoApril 12, 2013
1888 Mills
Mills in Griffin, Georgia –Long term
deal to make better quality towels.
Capital investment required due to
volume. “We made a commitment that
was longer term than we would normally
do.” Walmart
 1888
http://business.time.com/2013/04/12/how-walmart-plans-to-bring-backmade-in-america/#ixzz2VpVYk5dB Bill SaporitoApril 12, 2013
US Chemical Industry Capital Investment:
Incremental Due to Shale Gas
Billions of 2012 Dollars
Source: American Chemistry Council
Reshoring – indications of a strong trend!

54% intend to move production back in 2013, up from
37% in 2012 (BCG)
 40% of contract manufacturers reported having done
reshoring (MFG.com 4/12)
 76% of consumers more likely to buy U.S. product
 57% less likely to buy Chinese product (Perception
Research Services Intl. survey 7/12, 1400 consumers)
Bleeding has stopped!
Manufacturing Jobs/Year
2003
2013
% Change 2016***
New
~150,000* 30-70%
20,000
offshoring
50,000*
New
30+1,500%
70,000
reshoring
2,000* 40,000**
Net
-148,000 0
100% +50,000
reshoring
*Estimated ** Calculated ***Feasible
Gaining support in Washington, DC

Commerce Dept:


2012 budget specifies TCO.
Links:








http://nist.gov/mep/reshoring.cfm
http://business.usa.gov/program/reshoring-initiative
http://www.manufacturing.gov/other_orgs.html
Major new site: http://acetool.commerce.gov/
6 rounds of free MEP webinars
Testified at Congressional hearing on 3/28/12
Working actively with SelectUSA
Calls from:


United States-China Economic and Security Review
Commission
White House National Economic Council
1/11/12 Insourcing Forum
But how do apprenticeships and credentials pay?
Local Skilled Workforce Recruitment
Issue
“Trades” and
“vocations” image
Poor manufacturing
image due to
offshoring
Solution
Call them “Professions”
Industry collect and media
report the local reshoring
cases each month. Use
our Case Studies feature.
Economic Development Program Available
Action
Identify local imports
by company
Suggest to companies
they source locally
Train companies on
TCO to overcome issue
of higher local price
Source/Responsibility
Datamyne
EDO/MEP/ etc.
Reshoring Initiative
What can you do?
Use the tools for sourcing and selling
free at www.reshorenow.org
 Use our archived webinars to educate and
inform staff and customers
 Post a link to our website
 Submit cases of reshoring
 Sponsor us

What can you do?
Use the tools for sourcing and selling
free at www.reshorenow.org
 Use our archived webinars to educate and
inform staff and customers
 Post a link to our website
 Submit your cases of reshoring
 Sponsor us
 Sign up for Reshoring Newsletter, read our
blogs, stay informed

A non-profit with 35 sponsors, including
Platinum
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A non-profit with 35 sponsors
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SteeelSStSteeleel
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Iron
Iron
Help slow the offshoring flood now!
Contact:
Harry Moser
Founder and President
847-726-2975
[email protected]
www.reshorenow.org
or
Millar Kelley
[email protected]
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 check 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
Listen to this webinar
“What You Need to Know About Doing Business
in China”
http://www.blogtalkradio.com/smei/2014/02/20/what-you-need-to-knowabout-doing-business-in-china