Long beach d2 p returning manufacturing to america

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  • 1. Returning Manufacturing to America? by Michele Nash-HoffPresident, ElectroFab SalesA manufacturers rep agency
  • 2. • American manufacturing became synonymous with quality and ingenuity. Manufacturing is foundation of the American economy & rise of the middle class. In the 1970’s, over 26% of American workers were in manufacturing.• Decreased to 9.25 % by March 2009. 3/2/2013 2
  • 3.  Manufacturing accounted for about 28 % of U. S. Gross Domestic Product in 1965 Dropped to less than 11.7% by 2011 up from a low of 11.0% in 20093/2/2013 4
  • 4. Manufacturing Percent of GDP 30 25 20Percentage 15 10 5 0 Year Percent of GDP3/2/2013 5
  • 5.  Offshoring has been major cause of:  Slow economic growth  Great Recession  U.S and state budget deficits  Unemployment  Weakened middle-class  Declining innovation  Lower sales levels in weakened home market
  • 6. Offshoring Impacts Innovation ―an economy that lacks an infrastructure for advanced process engineering and manufacturing will lose its ability to innovate.‖ Professors Gary Pisano and Willy Shih Source: Restoring American Competitiveness, Harvard Business Review, July-August 2009
  • 7. Offshoring: partially herd behavior A ‗herd‘ mentality to participate in the ‗Chinese miracle‘ developed among global giant corporations --{Peter Nolan; University of Cambridge; - 9/03) People tell their bosses what they want to hear—(going to China) gives a boost to the stock valuation, but you really have to do the analysis on a case by case basis.‖ (Technology Forecasters 10/03 )Source: Stone & Associates
  • 8. How Can We Return More Manufacturing to U. S.? Design for Manufacturing & Assembly(DFMATM) – Boothroyd Dewhurst, Inc. Lean Manufacturing Understanding Total Cost of Ownership
  • 9.  What is Total Cost of Ownership (TCO) Estimate of direct and indirect costs and Most companies don‘t look beyond quoted unit price to make decision of which vendor to select. A company needs to understand concept of Total Cost of Ownership benefits related to purchase of parts
  • 10. Gartner Group originated TCO analysis and there are different methodologies & software for different industries.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**Source:* Archstone Consulting survey, American Machinist Mag., 7/16/09
  • 11.  TCO includes much more than purchase price of goods. For manufactured goods, it should include:  Geographical location  Transportation alternatives  Inventory costs and control  Quality controls  Reserve capacity  Responsiveness  Technological depth
  • 12.  Survey by SAP and IW Customer Research published in June 2008 Industry Week showed top objectives of conducting business overseas were:  Increase overall market share  Increase profitability  Reduce costs  Provide a superior customer experience  Increase overall revenue Companies with >$1 billion revenue met 58- 74% of objectives & companies with <$1 billion met only 37-47% of objectives
  • 13.  Decision to outsource offshore is often based on faulty assumptions, such as:  Overseas suppliers have same morals & work ethics  Longer lead times won‘t affect costs much  Overseas laws will protect IP  Can teach suppliers to meet quality standards
  • 14. •Communication won‘t be aproblem•Travel costs won‘t add much tocost calculations•Increase in delivery and qualitycosts won‘t be significant•Lean manufacturing tools can betaught to suppliers
  • 15.  Case studies show that these assumptions are far off from reality. Problems most often encountered are:  Variation – each lot takes weeks more time than anticipated to get to U. S.  Methods for producing product have gotten more complex, not less, raising costs  Company doesn‘t know how many or even most of hidden costs that exist  Company loses complete control of quick changes to react to hidden costs
  • 16.  Accountants measure hard costs but they don‘t often measure intangible costs - often called hidden factories because they keep everyone busy generating nothing tangible or of measurable value. Hidden factories indirectly produce many forms of ―soft‖ costs, such as  Loss of good will  Loss of competitiveness  Extended warranty costs  Legal costs
  • 17.  Here are some hidden costs:  Currency fluctuations  Managing offshore contract  Design changes  Quality problems  Legal liabilities  Travel expenses  Time and effort to make transition  Poor communication  Intellectual Property infringement  Cost of inventory
  • 18.  About five years ago, some business started returning Main problems encountered were:  Substitution of materials  Inconsistent or poor quality  Stretched out deliveries  Communication problems  Inability to modify designs easily & rapidly
  • 19. 3/2/2013 20
  • 20. DJO Cold Therapy Unit
  • 21. Jerry Wright, Vice President, said, ―The cooler cost $2 less than it did to buy if from China, when you factor in the freight, handling, and inventory costs. It‘s a nice enhancement to the product line, and we don‘t have to go through the horrible supply-chain frustration with China.‖ pg. 141
  • 22. Reshoring Initiative The Reshoring Initiative is a way to return manufacturing jobs to the U. S. Initiative was founded by Harry Moser, Chairman Emeritus of GF Agie Charmilles in 2010Contact: Harry Moser 847-726-2975harry.moser@comcast.netwww.reshorenow.org
  • 23. A non-profit with 21 sponsors, includingPlatinum Gold Silver
  • 24. A non-profit with 21 sponsors, includingBronzeSteel Iron Other
  • 25. Reshoring Initiative’s Objectives Change the Sourcing Mindset:  From: ―Offshored is Cheaper‖ to ―Local Reduces the Total Cost of Ownership.‖ Train:  OEMs on why to source local and how to use TCO Calculator.  Suppliers (and unions) on how to ―sell‖ local sourcing. Encourage production near the customer Do the best we can on the unlevel field now  Partial alternative to protectionism.
  • 26. The Industry-Led Initiative Provides Free Total Cost of Ownership (TCO) Software for companies & suppliers/unions Online Library of reshoring articles Media coverage of the trend: WSJ, USATODAY, IW, CBS, CNBC, etc. Regional Initiatives Motivation for skilled manufacturing careers Objective tools provided A solution to today‘s supply chain problems
  • 27. TCO Estimator Benefits Provides a single TCO for each source Flexible: values are 100% user selected. Broad:  29 cost factors.  Pull down menus you automatically insert:  Freight rates for 17 countries  Duty rates for parts or tools, e.g. molds  Current value and 5 year forecast of TCO. Easy to use:  Explanations and references to help select values.  Instruction Manual. Free
  • 28. Example: some Assumptions: a PartChinese unit price $70 Product liability risk* 0.5%U.S. unit price $100 IP risk* 1.9%# units/year 12,000 Innovation* 0.5%unit weight, lbs 2 Trips/yr 2Shipments/year 6product life, yrs 5 Prototype cost* $5,000Packaging* 1% Country political instability risk* 0.4%Payment on shipment Yes Wage inflation, annual* 8%Quality* 2% Currency appreciation, annual* 5%* Chinese differential vs. U.S.
  • 29. TCO Comparison Example:a Moderate Labor Content Part PRESENT AND FORECAST U.S AND CHINA PRICE AND TCO: PARTS $130.00 $120.00COST, U.S. $ $110.00 U.S. TCO $100.00 China TCO $90.00 U.S. Price $80.00 $70.00 China Price $60.00 $50.00 1 2 3 4 5 6 Year
  • 30. Cumulative Cost by Category CUM ULATIVE COST BY CATEGORY, YEAR 0: PARTS $110CUMULATIVE COST, U.S. $ $100 $90 U.S. $80 China $70 $60 ic e S rd sk ic en Pr Co G Ha Ri teg re er ra G th St O COST CATEGORY
  • 31. Freeman Schwabe Machinery: hydraulic die cutting presses Moved from Taiwan to Cincinnati, OH Reasons: Ability to Control Own Destiny Warranty Reduced by 90% Improved Speed to Market – at Least 30 days Builds Employee Skills & Morale Restore Long-Term ―Made in USA‖ heritage forSchwabe Presses
  • 32. Bailey Manufacturing LP  Moved from100,000 ft² in Chennai, India to 60,000 ft.2 in West Knoxville, TN  Reasons:  Fast delivery vs. 5 wks on the water  Fewer supply chain problems  No more bad units in route Source: Knoxvillebiz.com Ed Marcum 8/7/10
  • 33. ATMsReturned from China to 350,000 sq.ft. factory in Columbus, GAHired 900 employeesReasons: Slow response from contract suppliers Chinese wages up Have mfg. near engineering and customers
  • 34. General Electric GeoSpringhybrid electric water heater  Returned mfg. from China to Appliance Park, Louisville, KY  Redesigned water heater to eliminate 20% of the parts in final assembly  Used "lean" to cut the program cycle time in half  Reduced equipment investment by 30%.
  • 35. ZeeVee Inc. - digital video products Steve Metzger, V. P. – ―You often have to pay the manufacturer when they ship, and then the product can be tied up on a boatMoved production from China for five or six weeks. Asto Littleton, MA our volume increased, weReasons: hidden costs had to tie up more and•Travel more cash up front, and•Managing quality so the paradox is, the•Cost of doing business more successful youoffshore become, the more cash poor you are.‖
  • 36. Solatube International  Set up mfg. of Tubular Daylighting Devices in EPZ in China in 2008 - cheaper for 20 new plastic molding dies  Moved mfg. back to their plant in Vista, CA at end of 2011  Reasons:  Rising direct labor and indirect overhead costs  Rising shipping costs  Cost of quality problems  More efficient in USA
  • 37. Other Companies Reshoring 3M moved its Littmann stethoscope from 14 global suppliers to one operation in Columbia, Mo. Calibur11 moved manufacturing from China to Duluth and Chicago. Miken Sports moved baseball bats from China to Caledonia, Minn. AGCOmoved its North American tractor assembly plant from France to Jackson, Minn. Coleman relocated life-vest production from China to Sauk Rapids, Minn.
  • 38.  Outdoor GreatRoom Co. quit all India supply contracts and some in China & now makes most products in Minnesota. Datacard moved one product line from Malaysia to Minnetonka, MN Minnesota-based Paddi Murphy relocated its moisture-wicking pajama line from China to South Carolina and California. Permac Industries in Burnsville, MN moved contract blade manufacturing from China to Wisconsin after persistent quality problems.
  • 39.  2011 survey of North American manufacturing executives by Accenture found:  61% are considering shifting from offshore to closer to centers of demand  59% intend to pursue new supply options  67% proximity to customers markets top factor  57% noted increased cost of logistics & transportation costs
  • 40. “Renaissance in Manufacturing” ―We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015‖ ―take a hard look at the total costs‖ Labor cost 20-30% of unit costs and will be only 30% below U.S. level. 10% savings exceeded by other offshoring costs.Source: Boston Consulting Group press release 5/5/11
  • 41. Of Top 10 Supply Chain Predictions 2011# 5. “In the context of taking a broader view of total cost, supply chain organizations will gain a new appreciation for shortening lead times through profitable proximity sourcing strategies.”Reasons:● Improve overall service levels● Retain key customers● Focus on the ―costs‖ of long lead times● More balanced approach to global sourcingSource: Simon Ellis, Supply Chain Strategies, with IDC Manufacturing Insights 2/2/11
  • 42. Offshore Supply Chain Dynamics Changing Component/material prices increasing Labor rates rising 15-20% year over year in China Transportation costs rising Political instability - Labor riots/strikes Exchange rate variables Disruption from natural disasters U.S. $ declining Oil prices soaring
  • 43.  There is a growing realization that when it comes to quality and location, location may be best guarantee of all It‘s hard to outsource quality A growing number of manufacturers realize ―you get what you pay for‖ Applying good quality principles takes money, education, and experience, which are in short supply in low-wage countries.
  • 44. Advantages of Sourcing Domestically Ease of Communication Flexible Delivery Reliable Transportation Smoother Design Changes Lower Cost of Inventory Higher Quality Lower Travel Expenses No Intellectual Property Infringement Favorable Purchase Order and Credit Terms
  • 45. Sourcing Moving Home Slowly 20% of companies surveyed in 2010 brought sourcing closer in 2009 Of which 59% reshoredSource: Supply Chain Solutions, Grant Thornton, Jan. 2010 survey. 312 responses. According to Reshoring Initiative by 2012  10% of mfrs. have reshored  Creating 50,000 jobs
  • 46. Reshoring is fastest & most efficient way to strengthen the U.S. economy● Breaks out of tax/borrow and spend. Eliminates relying solely on currency changes. Assures that the pie grows, to the advantage of all Americans. Grows the pie by taking back what we earlier lost. Focuses on the manufacturing sector which has suffered so many job losses for decades. More efficient than exporting, stimulus programs or tax reductions.
  • 47. Potential benefits For the U.S.:  Eliminate trade deficit ~ $600B/year  Add 3 million manufacturing jobs  9-12M total jobs 4% unemployment  Budget deficit impacts: more than is likely from debt limit plan For U.S. companies:  Stronger home market  Reduced chance of protectionism hurting world sales  Increased sales as ―Made in USA‖ products
  • 48. Winning Manufacturing Attributes for Next 15 Years Customized products/services to serve customer‘s unique, specific needs and priorities Global locations to balance regional demand with regional supply Supply chain flexibility to support diverse channel and customer needs Agility on shop floor and beyond Negotiate and ―partner‖ for scarce resources
  • 49. Capabilities Needed to Rebalance Manufacturing Total Cost analysis of options Comprehensive manufacturing and supply strategy Skills and knowledge of staff Ability to increase supplier capability and capactiy Changing internal mindset for longer-term total cost view Improved understanding of local market capabilities
  • 50. Outsourcing will Continue Offshore outsourcing will continue for next 5-10 years, especially for multinational companies that have products to sell within that country Growing interest in outsourcing of engineering, software development, marketing, sales, and procurement Desirable‖ locations for outsourcing will change over time
  • 51.  Purely financial benefits of lower cost will erode over time Challenge is to keep as much manufacturing as possible within the United States Understanding & utilizing the TCO estimator worksheet of the ―Reshoring Initiative‖ will help maintain more manufacturing in U. S. and help return manufacturing to America.
  • 52. Michele Nash-Hoff is available to speak to professionalsocieties, trade organizations and service groups onthis topic, as well as ―What can Manufacturers do toSave Themselves‖ and ―Why we Should Save AmericanManufacturing and What Can I Do‖ for non-industrygroups.Contact: Michele Nash-HoffEmail: michele@savingusmanufacturng.comPhone: 619-265-7607Author of Can American Manufacturing Be Saved? Whywe Should and How we Canwww.savingusmanufacturing.com