Reshoring: How to make an informed decision re

Reshoring: How to make an informed decision re

Reshoring: How to make an informed decision re whether to offshore or reshore. AME Convention CoP 11/18/10 Harry Moser Chairman Emeritus, Agie Charmilles Leader, Reshoring Initiative Supported by: Definitions Reshoring: Bringing work back to the U.S.

Antonym: Offshoring Synonyms: Backshoring and Onshoring Nearshoring: Includes U.S., Canada & Mexico Reshoring Initiative Objectives Change the Sourcing Mindset: From: Offshored is Cheaper. To: Local Reduces the total Cost of Ownership. Train:

OEMs: Why to source local. Suppliers: How to sell local sourcing. Do the best we can on the unlevel field now! The Industry-Led Initiative Provides Free Total Cost of Ownership (TCO) Software for OEMs and suppliers

Online Library of 98 reshoring articles Linked NTMA/PMA Purchasing Fairs Media coverage: WSJ, USATODAY, IW, CBS, CNBC, etc. Logical Foundation 60% of manufacturers: Apply rudimentary total cost models Ignore 20% or more of the total cost of offshored products* 51% of companies found no financial benefit in offshoring** Sources: * Archstone Consulting survey, American Machinist Mag., 7/16/09 ** Supply Chain Solutions, Grant Thornton, Jan. 2010 survey.

Total Cost of Ownership: Steel Gear FOB Source: Gibb River Group TCO TCO Estimator Available

Easily estimate the Total Cost of Ownership Compare onshore 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 Free! TCO Estimator Software: 18 Cost Factors

FOB Price Packaging Duty Freight: air, surface, all fees Inventory: en-route, cycle, safety stock, obsolete Local warehousing Travel Rework/quality

Product liability IP risk Impact on innovation Prototype Forecast wage inflation and currency appreciation * Example Assumptions: a Part Chinese unit price U.S. unit price # units/year unit weight, incl. packaging, lbs shipment size, units

$80 $100 2 1,000 5 Packaging* 0 Quality* 0.50% IP risk*

2% Innovation* 0% 12,000 product life, yrs Payment on shipment Product liability* Yes

2% Trips/yr 2 Prototype cost* $5,000 Obsolescence, mos.* 2 Wage inflation, annual*

8% Currency appreciation, annual* 5% * Chinese differential vs. U.S. TCO Comparison Example: a Low-Moderate Labor Content Part COST, U.S. $ Com parison of U.S. and China TCO: Parts 120

100 80 60 40 1 2 China TCO 3 Year U.S. TCO 4

5 China FOB As Chinas Wages Rise, Export Prices Could Follow 24% to 100% wage increases! Source: New York Times, June 7, 2010 TCO Comparison Example: a Die or Mold Com parison of U.S. and China TCO: Dies/Molds 70

60 50 40 30 20 1 2 3 4 Y ear

China TCO U.S. TCO China FOB 5 Deming on Total Cost * End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Source: 4th key principle for management,

Out of the Crisis, W. Edwards Deming Offshoring contributes to Waste Toyota Wastes Offshoring Contributes Overproduction Large batch shipments Waiting Uncertain delivery/Inconsistent quality, port, customs Transport

12,000 mi. inbound, 6,000 return (boat full) Overprocessing More packing and unpacking Inventory In transit, cycle, safety stock, uncertain delivery and quality Motion Large batches require a customer warehouse. Travel, e.g. 2-3 weeks, 2-3X/yr

Defects Much higher than local sources, extra inspection of materials and tolerances Offshoring contributes to Instability Weather Port strikes Loss from mishandling Language problems Pirates * Offshoring contributes to Overburdening

Travel 2 am phone calls * Impact on Product Strategy Impact of batch size and distance: Offshoring commoditization Reshoring differentiation/mass customization

Reshoring 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, fabricated and molded parts, special tooling (dies, molds, jigs, fixtures and gauges) and special

machines. Purchasing Fairs Results of May 12 Fair 57 Customers: 64% brought offshored work 113 shops Next NTMA/PMA Fair Probably Chicago, 4Q2011 Why Reshoring 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 Increasing understanding of TCO Global sourcing not reducing costs % of companies reporting issues: Unreliable delivery: 65% Longer lead times: 61%

Poor quality: 61% Increased costs: 34% Source: The Smarter Supply Chain of the Future, IBM, Jan 2009, 400 executives worldwide Offshoring is slowing down % of companies moving some or all production work offshore: 2010: 15% 2007: 35% Source: 2010 Manufacturing and Wholesale Distribution National Survey, McGladrey, March 2 to April 5, 2010, 1061 U.S. respondents Sourcing Moving Home

20% of companies brought sourcing closer in 2009 Of which 59% reshored Source: Supply Chain Solutions, Grant Thornton, Jan. 2010 survey. 312 responses. Reshoring Easier than Exporting More There are distinct advantages for a U.S. manufacturer to compete here rather than offshore: Most of the TCO costs

Familiar legal and regulatory system Simplicity of selling into huge home market vs. added cost 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 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. Focuses on the manufacturing sector which has suffered so many job losses for decades. Reshoring and Government Status: TCO software in Cong. Wolfs HR 5980 Discussions with Dep. Assist. Sec. Perez, MEPs, EDA Encouraging Pres. Obama to broaden focus from exporting to include reshoring! Trying to set up local reshoring pilots in Flint, OH, AZ and IL (+CT, MD and SC)

Local Reshoring Pilots Chambers of Commerce and Economic Development offices involve the OEM execs. Train supply chain managers and local suppliers re reshoring advantages. Hold local reshoring fairs. Local team motivates follow-up and monitors the results, e.g. $ cost per job reshored. Develop model to take to other cities/states. * Initiative Will Affect Policy Survey supply chain managers:

What cost factors are considered? What is the price elasticity of the offshoring/ reshoring decision? * Become the national source of actionable information on the size, motivation, decision processes and industry mix of U.S. offshoring and reshoring. Requests of OEMs and Suppliers

Submit successful reshoring cases * Good publicity Good for the country 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! Bring some offshored work to the Fairs Requests of Suppliers Talk TCO Use the Estimator to help customers compare costs Suppliers: Maximize the value of proximity to

beat the LLC competitors Early involvement, partner, DFMA Technology, Lean, automation Respond to phone calls timely Guarantee the integrity of supply base Provide great customer support JIT delivery Guarantee delivery Presentations 9/28 National Press Club 11/18 AME Annual Convention

12/7 AFS Sales Training Session 12/9 NTMA/AMBA/BTC, W. MI 1/20 PMA Roundtable, Independence 3/10 SME Milwaukee Chapter 3/16 Reshoring Conference, Chicago 3/30 CAPM (ISM) Forum, Conn. 4/13 or 14 Amerimold, Chicago For more information on the Fairs 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] Visit: www.PurchasingFair.com For more information, to increase profitability and help slow the offshoring flood now Contact: Harry Moser Initiative Founder 847-726-2975 [email protected] Initiative: www.reshorenow.org Competing with/avoiding LLC competitors: http://us.gfac.com/company/careers/swot.cfm

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