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Re-Shoring: a Key to a Lean Supply Chain
and Robust Manufacturing
AME/APQC Benchmarking CoP - June 29, 2010
Harry Moser
Chairman Emeritus
GF Agie Charmilles
Re-Shoring Initiative
Customers: Why to Source Local.
Vendors: How to sell Local Sourcing.
Harry Moser
Chairman Emeritus
GF Agie Charmilles
Definitions
Re-shoring: bringing work back to the
U.S.
Antonym: Offshoring
Synonyms: Backshoring and Onshoring
Nearshoring: includes U.S., Canada &
Mexico
Re-Shoring Challenge:
Overcome 40 years of rapidly increasing offshoring!
Initiative Objectives
Promote the re-shoring trend
Provide tools to help OEMs make better
sourcing decisions
Help OEMs find competitive U.S.
sources
Document successful re-shorings
Offer prospective skilled manufacturing
workers hope for a lifetime career
The Re-Shoring Initiative:
Broad Industry Led Effort
NTMA/PMA Fairs: 5/12, Irvine, CA & Oct 29, Mashantucket, CT
Media coverage: WSJ, IW, CBS, CNBC, MMS, etc. (80+)
Publishing case histories
Online Library of 49 re-shoring articles
TCO Estimator for customer and vendor use
Support from:
Organizations: AMT, SME, AME, APQC, NAM, AMTDA, NIMS, FMA
Companies: AgieCharmilles, Big Kaiser, TCI Prec. Metals
NIST’s MEP
Interest from 1 U.S. Congressman
Change the Sourcing Paradigm
From: “Off-Shored is Cheaper”
To: “Local Reduces Total Cost of Ownership.”
Reduce Total Cost of Ownership (TCO)
Re-shoring’s benefits include:
Reduce pipeline and surge inventory impacts on JIT
operations;
Improve the quality and consistency of inputs;
Localize manufacturing near R&D and Marketing,
strengthening innovation;
Reduce IP and regulatory compliance risk;
Avoid foreign wage and currency surprises;
Minimize carbon footprint
All while staying cost competitive.
Reduce inventory example
LeadTime
Safety Stock proportional to
Total Cost of Ownership: Steel Gear
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
Direct Product Cost Overhead and Profit
Pkg., Freight and Inventory
Additional Quality Cost
End-of-life and prototype costs =
TCO (Total Cost of Ownership)
China
U.S.
Source: Gibb River Group
TCO Estimator Available
Easily estimate the Total Cost of Ownership
Compare on-shore to offshore cost
18 user-modifiable cost factors
Current and forecast costs
For parts and tooling
Status: in Beta test at customers and shops
Available!
TCO Estimator Cost Factors
FOB Price
Packaging
Duty
Freight: air, surface, all fees
Inventory: en-route, safety stock, obsolete
Rework/quality
Product liability
IP risk
Impact on innovation
Travel
Prototype
Wage inflation and currency appreciation
Example Assumptions
Chinese unit price $80.00
U.S. unit price $100.00
# units/year 12,000.00
unit weight, incl.
packaging, lbs 2.00
shipment size, units 1,000.00
product life, yrs 5.00
Packaging* 0.00
Payment on shipment Yes
Quality* 2%
* Chinese differential vs. U.S.
Product liability* 0.50%
IP risk* 2%
Innovation* 0%
Trips/yr 2
Prototype cost* $5,000
Obsolescence, mos.* 2%
Wage inflation* 8%
Currency appreciation* 5%
TCO Comparison Example
Comparison of U.S. and China TCO: Parts
40
60
80
100
120
140
1 2 3 4 5
Year
CO
ST, U
.S. $
China TCO U.S. TCO China FOB
“As China’s Wages Rise, Export Prices
Could Follow”
24% to 100% wage increases!
Source: New York Times, June 7, 2010
Offshoring contributes to Waste
Toyota Wastes Offshoring Contributes
Overproduction
Waiting Uncertain delivery/Inconsistent quality
Transport 12,000 mi. inbound, 6,000 return (boat ½ full)
Overprocessing Inspection of material and tolerances
Inventory In transit, safety stock, uncertain delivery and quality
Motion Travel, e.g. 2-3 weeks, 2-3X/yr
Defects Much higher than local sources
Other LCC supply chain issues
Multiple language barriers: English/Mandarin and
Mandarin/local dialect
ISO certificates often close to meaningless
Off-hours phone calls
Big turnover problems: was typically 80% at many
Indian companies in 2008
Re-Shoring Facilitates Clustering
Innovation
Partnering
Communications
Lean supply chain
DFMA
2010 NTMA / PMA Contract
Manufacturing Purchasing Fairs
A one-stop for OEMs to find competitive U.S.-
based sources.
50+ OEMs.
100+ job shops - machined, stamped and
fabricated parts, special tooling (dies, molds, jigs,
fixtures and gauges) and special machines.
May 12, 2010 Irvine, CA Fair
Who should attend the
Fairs/consider re-shoring?
Jobs out parts or tooling
JIT logistics with variable demand
Valuable IP
Tight regulatory and/or quality requirements
Partners with contract manufacturers
Committed to minimize carbon footprint
Committed to strengthening U.S. manufacturing sector
What Work to bring to the
Fair/consider for re-shoring?
Offshored or U.S. sourced work
Machined, stamped and fabricated parts, special tooling and special machines
Products to be sold in N. American market
High mix/low volume
New/quick launch/frequent engineering changes/short life cycle
Fragile
High risk, safety parts
Low labor content
Shipping cost high vs. labor costs
Results of May 12 Fair
57 Customers: 64% brought offshored work
113 shops
Many of both asked to test the TCO Estimator
15 existing re-shoring cases reported
Why Re-Shoring is a Hot Topic
A renewed focus on manufacturing by the White House and Congress
High international transportation costs
High foreign wage inflation
Expected Yuan appreciation
Low domestic capacity utilization
Focus on increasing employment
Growing awareness of IP and quality risks
Sourcing Moving Home
Companies are shifting some work home or close to home:
11 of 20 in N. America
2 of 10 in Europe
Source: 3PL Provider CEO Perspective 2008 survey of major logistics
providers.
Sourcing Moving Home
51% of companies surveyed found no financial benefit in
offshoring
20% brought sourcing closer in 2009
Of which 59% re-shored
Source: Supply Chain Solutions, Grant Thornton, Jan. 2010
survey.
312 responses.
Re-Shoring’s Visibility is Booming!
0
10
20
30
40
50
2000 2002 2004 2006 2008 2010
Year Article Published
# o
f A
rtic
les
Note: 1. 2010 calculated as 6X January + February count.
2. Measured by counting all relevant articles found via early March 2010 Google search on “re-shoring” “back-shoring”
and “on-shoring.”
Some Published Cases
ATMs
Bicycles
Electric hand drills
Hybrid batteries
Machine tools
Photo Voltaics
TVs
Water heaters
Why it is easier to re-shore than
to export more
There are distinct advantages for a U.S. company to compete here rather than offshore:
Absence of duty, freight and ocean packing
No Interest on pipeline and contingency inventory
Familiar legal and regulatory system
Simplicity of selling into huge home market vs. fixed costs of overseas sales and support
No exchange rate issues
Cost advantages of greater than 24%, similar to total direct labor % of mfg. cost
Timing: quick impact because already selling here
Requests of OEMs
Try the TCO Estimator
Help improve the Estimator
Make sourcing decisions based on TCO, not just price
Check our Library to see what your industry is doing
Consider how a stronger home market benefits your
sales
Attend the Fairs!
Requests of Vendors
Talk TCO
Use the TCO Estimator to help your customers
estimate the cost of on-and off-shoring
Help improve the Estimator
Attend the Fair!
Requests of All
Submit successful re-shoring cases
Good publicity
Good for the country
Why Re-Shoring is Good for America
Re-shoring can strengthen and broaden manufacturing and the
defense base
Re-shoring can strengthen SMEs -- the source of job growth
Re-shoring can help reduce the trade deficit, budget deficit and
unemployment
America Understands!
Best ways to create more U.S. jobs:
Keep mfg. jobs here: 18%
Lower taxes: 14%
Help small business: 12%
Green jobs: 12%
Infrastructure: 10%
Etc.
Source: Gallop Poll, Nov. 20-22, 2009
America Responds!
June 21 email from TN OEM
Offshores 70+% of components
Always felt guilty about offshoring
Preaches importance of mfg.
Read June Mfg. Eng re-shoring article
Will seek U.S. sources and reconsider in-house mfg.
Article: a “Kick in the seat of the pants.”
For more information on the Fair
Visit: www.PurchasingFair.com
Contact:
Rob Akers - Chief Operating Officer
National Tooling & Machining Association
9300 Livingston Rd,
Ft. Washington MD, 20744
Toll Free: 800.248.6862
Direct: 301.281.8009
E-mail: [email protected]
For more information on the
Re-Shoring Initiative
Contact:
Harry Moser
Initiative Leader
847-726-2975
Re-Shoring: a Key to a Lean Supply Chain
and Robust Manufacturing
AME/APQC Benchmarking CoP - June 29, 2010
Harry Moser
Chairman Emeritus
GF Agie Charmilles
Brought to you by www.VelocitySchedulingSystem.com
