Chain of Thought

The Secrets to Supply Chain Success in the U.S.

Few industries have had as rough a go of it in recent decades as the U.S. textile industry, which in terms of jobs has shrunk by 75% since the 1970s, from 1 million to about 240,000 today. Most of that exodus has been due to the offshoring of jobs to low-cost countries in Asia and Latin America, but that doesn’t mean every U.S. textile company has thrown in the towel, so to speak. For instance, Valdese Weavers continues to produce fabric from its home base in North Carolina, and credits much of its ongoing success to lean supply chain management practices.

To be more precise, what Valdese practices could be best described as extended lean supply chain management. While traditional lean focuses on processes within a single plant, extended lean connects sites within a company’s supply chain, explains Eric Lail, vice president of continuous improvement with Transportation Insight, a third-party logistics provider (3PL). Lail, along with Renae Ledford, process engineer and continuous improvement leader at Valdese Weavers, were part of the “Supply Chain Strategies” track at the recent IW Best Plants 2013 Conference hosted by MH&L’s sister publication, IndustryWeek.

Driving waste out of the plant is a core tenet of lean manufacturing, so it stands to reason that driving waste out of the supply chain would be key to extended lean. To that end, Valdese has partnered with Transportation Insight on various projects aimed at identifying and then eliminating waste, particularly in the areas of logistics and procurement. One such project targeted Valdese’s annual spend on freight transportation, which was something of a mystery since the company knew how much it spent, but not necessarily on what. That changed when the freight carriers were asked to begin itemizing exactly what they were invoicing Valdese for. Gaining visibility into its freight costs led Valdese (and Transportation Insights) to shift some freight from less-than-truckload to full truckload, and similar modal shifts. That ultimately helped Valdese lower its inbound freight costs by 30%, and outbound by 12%. The savings gained from leaning the supply chain were then invested into training programs for Valdese’s employees, Ledford explains.

Valdese is a vertical manufacturing operation, which as Ledford explains allows the company to maximize service to its customers. Another company that excels through vertical integration is lift truck manufacturer Crown Equipment Corp. According to Dave Beddow, Crown’s vice president of manufacturing operations, the company designs, engineers and manufactures up to 85% of its lift trucks and components, and is vertically integrated across 16 global manufacturing facilities. There are numerous advantages to the vertical approach, he says, which he broke down into four different areas:

• on the customer side, vertical integration helps improve speed to market, creates more product differentiation and allows for increased flexibility;

• in the area of product development, it facilitates new technology, safeguards intellectual property and allows for collaboration between design, engineering and manufacturing;

• on the supply chain side, vertical integration helps mitigate supply risk while giving Crown more control over its costs;

• and in terms of growth, Crown has been able to grow its manufacturing base as well as increased aftermarket revenue as a result of better quality products.

Crown’s vertical model has led the company to reshore some of its work back to the United States, finding that it makes better sense to manufacture its products here and then export them overseas, rather than vice versa. Harry Moser, founder and president of The Reshoring Initiative, certainly agrees with Crown’s strategy, as he believes that offshoring negatively impacts innovation.

“A lot of offshoring happened in the first place because companies didn’t do the math,” Moser explains. Even those manufacturers who take landed cost, wage arbitrage and purchase price variance considerations into account when choosing to move offshore are missing as much as 20% of the total cost of ownership (TCO), and hence fail to recognize just how expensive offshoring can be.

While there may have once been a sizable cost of labor differential between the United States and China, Moser points to a recent report from Boston Consulting Group that states that net labor costs for manufacturing in China and the U.S. will converge within the next couple of years. “Not only are China’s labor costs going up, but so are labor costs in other so-called ‘low-cost’ countries such as Vietnam, Thailand and Indonesia,” Moser says.

The Reshoring Initiative offers a free TCO calculator at its website, www.reshorenow.org. As Moser states, “You do not have to sacrifice quality, delivery, time-to-market, or employees to be competitive and profitable.”

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