Resiliency concerns revealed by the COVID-19 pandemic are driving both reshoring and digital transformation. A realignment of priorities towards risk mitigation, agility, responsiveness and faster time-to-market are encouraging companies to shorten supply chains and reshore; 47 percent of small and medium-sized manufacturers (SMMs) are reevaluating supply chains.
To be cost-competitive, domestic manufacturers are looking to adopt Industry 4.0 technologies to close the labor price gap. New technologies are a game changer in achieving U.S. competitiveness and reshoring.
A November 2020 survey of SMMs by The Manufacturing Institute’s Center for Manufacturing Research and BKD revealed that more than 77 percent of respondents were making technological investments at their businesses to cut costs in the production process, with 73 percent doing so to improve efficiency. A PWC study found that the lion’s share of manufacturers are investing in digital factories for efficiency gains (98 percent). Investments in digital manufacturing yield leaner, more productive operations via integrated planning, better asset utilization, lower quality costs and cost benefits from automation.
Technology friendly organizations are driving U.S. competitiveness by increasing efficiency. As labor becomes a smaller share of total costs, companies that once offshored due to cheap labor are beginning to favor close proximity to the markets they serve, i.e. reshoring. A Gartner survey of 1,300 supply chain professionals found that 56 percent think automation will make onshore manufacturing economically viable.
The Reshoring Initiative’s 2020 Data Report found that despite the COVID-19 pandemic, reshoring numbers were up in 2020. Reshoring and foreign direct investment (FDI) job announcements for 2020 were 160,649, bringing the total jobs announced since 2010 to over 1 million. Also of significant importance: reshoring exceeded FDI by nearly 100 percent, the first win for reshoring since 2013. Additionally, the number of companies reporting reshoring and FDI set a new record: 1,484 companies (see Figure 1).
The Thomas 2021 State of North American Manufacturing Annual Report revealed that 83 percent of North American manufacturers are likely or extremely likely to reshore production, up from 54 percent in March 2020. In a broad range of products, with the right technologies, companies can increase production, outperform the offshore alternatives and make the case for reshoring. Let’s take a look at Industry 4.0 solutions.
Industry 4.0 has four foundational technologies, including:
--Connectivity and data including Internet of Things, Cloud technology and blockchain.
--Analysis and intelligence, including advanced analytics, machine learningand artificial intelligence.
--Human to machine interaction, including virtual and augmented reality, robotics and automation.
--Advanced engineering, including additive manufacturing, renewable energy,and nanoparticles.
Accelerated adoption of some Industry 4.0 technologies that help companies quickly adapt to new norms may be the right choice for your company and can be implemented without major investments. Examples include digital work instructions, augmented reality-based operator assistance, digital performance management (DPM), or simple retrofit automation that may be enough to close a small TCO (total cost of ownership) gap to reshore.
For example, an investment in automation paid off for one essential manufacturer. Salt Lake City-based thermoformer Premier Plastics Inc., a manufacturer of medical products, invested $1 million in new automation equipment and six workers, and added a third shift due to pandemic-driven growth. Jim Holbrook, founder/president, found that together, the new robotic automation system was 70 percent faster, shortening production times with significant cost savings. “That machine gives us 1½ times more output than my other machines,” said Holbrook. “We’re talking about buying another one soon and replacing an eight-year-old machine.”
In 2020, U.S. manufacturers collaborated with competitors and retooled factories to solve the nation’s essential medical equipment and supplies shortages. Amidst massive shortages of critical nasal swabs for COVID-19 testing, the companies Neurophotometrics and Markforged collaborated to innovate a 3D-printed swab with higher accuracy than the current standard. “Markforged 3D printing enabled us to test more than 50 prototypes in 36 hours. And in the last two weeks, we’ve turned an idea into a viable product that’s going to save lives,” said Sage Aronson, CEO and founder of Neurophotometrics.
Most companies make sourcing decisions based solely on free on board (FOB) price, or at most landed cost, often resulting in a 15 to 30 percent understatement of offshoring costs. The TCO Estimator, a free online tool, guides companies through a comprehensive system for recognizing and quantifying all of the costs and risks associated with offshoring and reshoring.
The logic applies to all countries, not just the U.S.
TCO analysis helps companies objectively quantify, forecast and minimize total cost. It takes into account freight and duty; travel expense and time; inventory carrying cost; warranty; intellectual property (IP) risk; impact on product innovation from having manufacturing distant from engineering; the losses from stock-outs due to long delivery times; and the value of a “Made in USA” label.
Companies must decide whether to invest in Industry 4.0 in the U.S. or offshore to low-labor-cost countries. Measuring cost correctly is key to the analysis. The ROI on overcoming a 5 percent TCO difference is a lot higher than on a 20 to 30 percent FOB difference. Companies should stay focused on selling against imports by using TCO as a sales tool and on using Industry 4.0 technologies to close any remaining cost gaps.
Now is an especially good time for companies to re-evaluate the choice of domestic vs. offshore production. The Reshoring Initiative website provides tools to help companies decide objectively whether their overhead will come down more than their manufacturing cost goes up when sourcing or producing locally.
Contact Harry Moser at 847-867-1144 or email@example.com.
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