Many manufacturers think they are saving money by sourcing products from countries with cheap labor, but last year’s Contract Manufacturing Purchasing Fair opened the eyes of companies like them to opportunities that would not only make them more efficient, but also help them contribute to U.S. manufacturing’s strength.
During this event, OEMs in attendance met domestic suppliers that could manufacture their parts and tooling at a lower total cost than what they were getting from their current offshore suppliers. Sixty-four percent of these OEMs brought to the Fair at least some work that was currently offshored. This is just one example of how a new philosophy that started out changing OEMs’ behavior for their own self interest is actually turning them into better corporate citizens as well.
Using resources like the non-profit Reshoring Initiative has helped companies more accurately compare the Total Cost of Ownership (TCO) of offshoring to domestic sourcing using the free TCO Estimator software. The expectation of this Initiative was that companies would start to reshore some manufacturing if they knew that the numbers behind the decision made sense.
Here are some of the key factors affecting that calculation and how the Initiative helps crunch the numbers:
• Risk of Intellectual Property (IP) loss. The Estimator helps a company quantify the risk of IP loss and include that risk in the TCO.
• Chinese wages are rising rapidly. The Estimator calculates current TCO and projects five years into the future based on forecast wage inflation and currency changes.
• Locating production closer to end customers instead of chasing low cost labor can help avoid supply chain disruption. By understanding the TCO of offshored and domestic sources, a company is less likely to be so blinded by low labor costs as to ignore the other costs, including political instability, natural disasters and other risks of having large, extended offshore supply chains.
• Including carbon footprint in the sourcing decision. The Estimator includes 34 cost factors including five green costs in determining TCO, simplifying the sourcing decision process.
The Reshoring Initiative is a non-protectionist, efficient way to reduce our imports, increase our “net exports” and regain manufacturing jobs. The Initiative documents for large manufacturers the benefits of sourcing in the United States and helps suppliers convince their U.S. customers to source locally.
Archstone Consulting’s 2009 survey showed that 60% of manufacturers use “rudimentary total cost models” and ignore 20% of the cost of offshoring. To help companies make better sourcing decisions the Reshoring Initiative provides:
• A free Total Cost of Ownership software program that helps them calculate the real offshoring impact on their P&L,
• Publicity to drive the reshoring trend,
• An online library of 98 articles about successful reshorings, and
• Access to NTMA/PMA Contract Manufacturing Purchasing Fairs to help them find competitive U.S. sources.
An integrated 5-step Illinois Reshoring Initiative has been launched to demonstrate the Initiative’s effectiveness. We anticipate improving companies’ profitability while bringing “permanent” manufacturing jobs back at a cost of $1,000 each, less than 1% of the cost of one year of Stimulus Program jobs.
Readers can help bring jobs back and simplify their supply chains by asking their companies to reevaluate offshoring decisions. Suppliers can use the TCO software to convince their customers to reshore. Both can propose local reshoring initiatives and submit successful reshoring cases to be publicized. Knowing your TCO will help you improve your bottom line and be a better corporate citizen at the same time.
Harry Moser can be contacted at [email protected] . He founded the Reshoring Initiative, with the support of the Association for Manufacturing Technology (AMT); Sescoi; GF AgieCharmilles; the Association for Manufacturing Excellence (AME); the National Tooling and Machining Association (NTMA); the Swiss Machine Tool Society (SMTS); and by Science of Business. Additional information on the NTMA/PMA Purchasing Fairs can be found at www.purchasingfair.com . Additional information on the Illinois Reshoring Initiative is at www.illinoisreshoring.org .