To Offshore or Reshore: How to Help your Customer Objectively Decide

Transcription

1 To Offshore or Reshore: How to Help your Customer Objectively Decide NTMA Harry Moser President Reshoring Initiative

2 Agenda Overview 50 min Break 10 Website: TCO, Library, Case Studies 20 Your reshoring cases 10 Discussion on using TCO 20 Q&A 10 Total 120 min

3 Suggested priorities re reshoring 1. Keep existing domestic sources 2. Shift outsourcing back 3. Repurpose offshore own-facility to serve the offshore market. Incrementally invest domestically to serve domestic market 4. Shut offshore own facility. Build new domestic facility.

4 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!

5 Geographic sourcing alternatives

6 The concept also works in other countries

7 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

8 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

9 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

10 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

11 Some major global supply chain problems Fragility: Natural disasters: Japan tsunami, Thai flood, European volcano Political instability Chinese and other LLCC wages and environmental costs rising rapidly U.S. $ declining Oil soaring

12 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. Free

13 TCO Example: a Part Chinese unit price $70 Product liability risk* 0.5% U.S. unit price $100 IP risk* 1.9% # units/year 12,000 unit weight, lbs 2 Innovation* 0.5% Shipments/year 6 Trips/yr 2 product life, yrs 5 Carrying cost, rate 22% Packaging* 1% Emergency air freight %* 5% Payment on shipment Yes Wage inflation, annual* 8% Quality* 2% Currency appreciation, annual* 5% * Chinese differential vs. U.S.

14 TCO Comparison Example

15 CUMULATIVE COST, U.S. $ Cumulative Cost by Category CUM ULATIVE COST BY CATEGORY, YEAR 0: PARTS $110 $100 $90 $80 U.S. China $70 $60 Price CoGS Other Hard Risk Strategic Green COST CATEGORY

16 Just using TCO could bring back 25% of offshoring Comparison Basis U.S. % of China price or TCO, average Price 169% 15% TCO 96% 56%* % of cases where U.S. has the advantage 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.

17 Deming on Total Cost End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Source: 4 th Key Principle for Management, Out of the Crisis, W. Edwards Deming

18 Offshoring multiplies waste Toyota Wastes Overproduction Waiting Transport Overprocessing Inventory Motion Defects Offshoring Contributes Large batch shipments, filling containers Uncertain delivery/inconsistent quality, port, customs, shared awake time window for discussions 12,000 mi. inbound, 6,000 return (boat ½ full) More packing and unpacking, customs paperwork, In transit, cycle, safety stock, uncertain delivery and quality, less ability to see and count Increased cost over time repetitive motion injuries or additional labor to compensate Much higher than local sources, extra inspection of materials and tolerances, customers unhappy longer

19 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

20 And Product Strategy Impact of batch size and distance: Offshoring commoditization Reshoring differentiation/mass customization

21 Some Reshorers

22 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

23 Bailey Hydropower Hydraulic cylinders 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

24 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

25 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

26 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

27 Hydraulic die cutting presses o From Taiwan to Cincinnati, OH o Ability to Control Own Destiny o Warranty Reduced by 90% on Custom Presses o Improved Speed to Market at Least 30 days o Thus Far Created 17 Jobs Builds Employee Skills & Morale Restoring Long-Term Made in USA Heritage for Schwabe Presses

28 Buttons China to Clarkesville, GA Reasons: Salaries up Expectations up Rising Yuan 20-25% of employees did not return from annual holiday

29 Wright Engineered Plastics injection molding China to Santa Rosa, CA Medical and Telecom customers 4+ customers reshored, including JDS Uniphase and ECO Funnel Reasons: Transport costs up Wages up Quality issues common and difficult to handle Source: Design2Part mag, Yes, You Can Go Home Again, Say Some Manufacturers by Mark Shortt

30 Welded assemblies for aerospace and energy From Hungary and China to Torrance, CA Added 80 jobs in the US and looking to hire more Reasons Quality control issues overseas Customers willing to pay more for high precision quality

31 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%

32 50% of Frisbee production China back to CA and MI 8 jobs added

33 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)

34 50,000 Manufacturing Jobs since Jan 2010! Reshoring yielded: About 50,000 manufacturing jobs* ~ 10% of manufacturing job growth since the Jan 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

35 Industries of published cases Industry Number Elec. equip, appliances & components 37 Miscellaneous 33 Transportation equipment 27 Machinery 18 Furniture 11 Computer and electronics 9 Plastics and rubber 8 Fabricated metal parts 6 Clothing and textiles 3 Food and beverage 3 Chemicals 1 Primary metal 1 Oil & gas 1 SSource: Reshoring Library, July 2012 Source: Reshoring Library, July 2012

36 U.S. ManufacturingCompetitiveness: for Exports U.S. Mfg. Cost Advantage over China for Products Consumed in the China (1) 290% 0% -5% -10% -15% -20% -25% -30% -35% -40% -45% -50% -55% -60% -65% -70% Furniture Food Auto Final Assm. Electrical Eqpmt Primary Metal Computer Eqpmt Appliances Auto Veh. Parts Textile Mills Paper Textile Product Mills Printing Petro/Coal Leather Electronics Apparel Plastics Pharma. Wood Product Fabricated Metal Other Transp. Eqpmt. Bev. & Tobacco Nonmetallic Mineral Product Machinery Semiconductors Medical Eqpmt. Chemicals U.S. Manufacturing Positional Advantage for Export Circle size = U.S. consumption Global Leaders Aerospace High 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

37 U.S. Manufacturing Competitiveness: in Domestic Markets U.S. Mfg. Cost Advantage over China for Products Consumed in the US (1) 300% 200% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% -70% Textile Product Mills Apparel Textile Mills Nonmetallic Mineral Product Wood Product Fabricated Metal Paper Plastics Furniture Printing Pharma. Leather Electrical Eqpmt. Appliances Computer Eqpmt. Low Bev. & Tobacco Primary Metal Auto Final Assm. Electronics Petro/Coal Other Transp. Eqpmt. * Semiconductors Food Machinery Medical Eqpmt. U.S. Manufacturing Positional Advantage for U.S. Demand Chemicals Circle size = U.S. consumption Global Leaders Regional Powers Sectors on the Edge Niche Players Aerospace 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

38 Reasons for published cases REASON # of CASES CITED Wage and Currency Changes 54 Quality, Warranty, Rework 41 Delivery 38 Freight Cost 32 Travel Cost/Time or Local Onsite 27 Inventory 25 Total Cost 20 Communications 14 Image/Brand (prefer U.S.) 12 Loss of Customer Responsiveness 9 Emergency Airfreight 9 Difficulty of Innovation/Product Differentiation 6 Natural Disaster Risk 4 Price 4 Green Considerations 4 Burden on Staff 3 Product Liability 2 Personnel Risk 1 Regulatory Compliance 1 Source: Reshoring Library 9/12

39 64% of reshoring cases are from China Country from which reshored China 79 Mexico 18 Japan 10 India 6 Taiwan 5 Philippines 3 Canada, Germany, Malaysia 2 Brazil, El Salvador, Indonesia, Singapore, UK Number 1 Source: Reshoring Library 9/8/12

40 Special Relevance to Quality, Automation Process Improvement and Workforce By focusing on the small TCO gap instead of the large price gap: You can justify domestic process improvement, automation, training, etc. You do not have to trade-off quality for price. Recruiting is enhanced as reshoring becomes more visible

41 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.

42 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.

43 Gaining support in Washington, DC Commerce Dept: 2012 budget specifies TCO. Links now: 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

44 1/11/12 Insourcing Forum

45 1/11/12 Insourcing Panel

46 But how do apprenticeships and credentials pay?

47 What can you do? Use the tools. Free at Use our archived webinars to inform staff and customers Work with groups being trained on TCO, e.g. MEPs Prepare your workforce for reshoring Post a link like Call on me to speak at: open houses, webinars, sales and supply chain training sessions, esp. for customers. Submit cases of reshoring for publication and posting using our template. Add visibility to your company, industry, and NTMA Sponsor

48 What can NTMA do? Call on members to report reshoring cases. Post the cases Get me onto the programs of events for large customer industries that offshore Work with: MEP (free 11/29 webinar) EDOs Make NTMA the U.S. reshoring leader!

49 Who has reshored as OEM or supplier? Please: Tell us now See me Give me your card marked cases.

50 A non-profit with 42 sponsors Platinum Gold Gold Gold G Silver Silver

51 A non-profit with 42 sponsors Bronze BronzeB ronzebro nze SteeelSStSteeleel Steel Iron Iron

52 The first group to help us reach companies!

53 Help slow the offshoring flood now! Contact: Harry Moser Initiative Founder Recruiting trainees for the skilled manufacturing workforce: