Viewpoints: Re-Shore! Help Revitalize US Manufacturing
I am dismayed by US manufacturing's decades-long decline, a major cause of high unemployment and massive trade and budget deficits. Unlike the government, which so far has talked but not acted, three US trade associations are striving to reverse the decline. You can help by attending the Contract Manufacturing Purchasing Fairs: Emphasizing Reshoring to Bring US Manufacturing Jobs Home, offered by the National Tooling and Machining Association (NTMA) and the Precision Metalforming Association (PMA). The first re-shoring Fair was in Irvine, CA on May 12. The next is in Mashantucket, CT, on Oct. 29.
The re-shoring (i.e., on-shoring or back-shoring) effort is a solution to the "Problems of Offshore Production" posed in the January 2010 Viewpoints article by John Cheung, CEO of OMAX Corp. John provided a clear description of the risks and costs of offshoring. I agree with every point he made.
Many companies ignore the costs John mentioned and simply compare FOB prices, resulting in decisions to offshore. If the companies, instead, calculate their Total Cost of Ownership (TCO) they will discover that they should re-shore substantial amounts of work. In addition to the cost factors John mentioned, companies should include costs such as packaging, duty, and freight, as well as less obvious ones, e.g., interest on intransit and safety-stock inventory, higher prototyping costs (because a US shop charges more for the prototype, knowing it will not get the production work), and end-oflife obsolete-inventory costs. Also, there are hard-to-quantify costs such as risk of IP loss, regulatory noncompliance, and reduced innovation effectiveness and speed due to the physical separation of manufacturing and R&D.
Gibb River Group (Chicago), a sourcing consultant, compared the US and Chinese TCO of a low-labor-content stainless gear. At FOB level, the US cost was 15% higher. Costs were tied after duty, freight, quality, and inventory costs. The US was 8% lower after allowing for end-of-life and prototyping cost differences. Calculating IP risk, proximity to R&D, and carbon footprint would widen the US advantage.
NTMA has produced 50 Purchasing Fairs in 25 years. NTMA and PMA, in collaboration with AMT–The Association for Manufacturing Technology, have shifted the primary emphasis of the Fairs from work that is domestic to re-shoring, while still welcoming domestic work. The Fairs provide a venue for larger US manufacturers to find competitive domestic job shops or contract manufacturers for custom machining, stamped and fabricated parts, and special tooling.
The re-shoring initiative's objective is to change the mindset of US supply-chain managers from "Offshored is cheaper" to "Local reduces TCO." To achieve this major cultural change, our effort must be broad. We have created a surge of re-shoring publicity with at least 60 articles and mentions so far. Our online library contains 50 other re-shoring articles, so OEMs can see how competitors are benefiting from bringing work back. We are documenting the TCO cost-accounting concept to OEMs to change their decision process, and to shops to help them convince the OEMs of re-shoring's benefits.
President Obama has called for doubling exports in five years. Re-shoring is much more likely to achieve our shared economic objective of increasing net exports. Before the 2008 crash, the US trade deficit was about $800 billion/yr. At sales of $150,000/yr/job, that's about five million manufacturing jobs. The accepted manufacturing multiplier of 1.4 would add another seven million nonmanufacturing jobs for a total of 5–12 million jobs, reducing unemployment to as low as 2%. The resulting income and corporate taxes and reduced unemployment and stimulus-program expenses would cut the budget deficit by 30% or more.
The time is right for re-shoring. Skilled wages in low-labor-cost countries are rising at about 10% per year. Import IP violations and quality issues are routinely reported. Transportation costs are increasing as oil prices mount. Companies savaged by excess inventory during the Great Recession can reduce their inventory via local sourcing. For reasons such as these, and the TCO arguments described above, 51% of companies that have offshored found no financial advantage in doing so (per Grant Thornton's January 2010 survey, reported in their Supply Chain Solutions publication).
You can help your company and your country with this initiative.
Go to www.tiny.cc/YU9e2. At this site:
- Your supply chain manager can register for the Fair.
- You can report your successful re-shorings for future articles.
- You can read relevant articles in the Re-Shoring Library.
I ask you to support this effort, in the interest of your companies, and of the quality of life of your children and grandchildren!
This article was first published in the June 2010 edition of Manufacturing Engineering magazine.