Making Reshoring Decisions

To reshore, or not to reshore? That’s the question examined during two workshops and lively discussions today. Harry C. Moser, founder and president of the Reshoring Initiative, explains that reshoring is bringing manufacturing back to the United States. But, he emphasizes that this is not solely for the benefit of the U.S., because at its core is the concept of bringing manufacturing to the market where products will be consumed.

Moser’s reshoring workshop was followed by a look at the “Changing Landscape of Manufacturing in the U.S.,” by Daniel Feiman, managing director of Build it Backwards.

Both manufacturing experts agreed the landscaping is slowly changing and will continue to change in the future.

Manufacturing left the U.S., Moser contends, because companies did not do their math properly. He said they “applied rudimentary total-cost models and ignored 20 percent or more of the total cost of offshored production when they shipped manufacturing overseas.”  With rising labor costs in China, he expects labor costs in China and the U.S. to converge around 2015.

Feiman says manufacturing has been moving back to U.S. shores for numerous reasons, including quality control, reduced shipping costs and consumers desire to see a “Made in America” label.

Moser and Feiman highlighted companies that have reshored recently, from Airbus to GE, as well as several middle-market companies. Moser said he is passionate about bringing manufacturing back to the U.S. He told the crowded workshop that the Reshoring Initiative offers many free online tools to help companies calculate if reshoring is the best move for their companies.

Feiman noted that reshoring has been going on since 2008, and he projects it will continue in earnest for the next several years.

“The question is, do you want to participate, or sit around and watch as your competitors participate?” he said.

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3 Comments on “Making Reshoring Decisions”

  1. Reshoring is a good thing, especially since companies doing so can help return some much-needed manufacturing jobs to U.S. soil. But what type of manufacturing jobs? Which industries?

    Reshoring is not a one-size-fits-all solution. Many industries and/or products just are not a good fit for reshoring for various reasons.

    Plus, despite a lot of reshoring manufacturing hype, there is some evidence support a secular decline in U.S. manufacturing.

    http://wallstreetexaminer.com/2013/04/24/durable-goods-orders-show-us-manufacturing-continuing-secular-decline/

    It also seems many on the reshoring bandwagon only want to hear the good news without asking some of the more difficult questions.

    What happens when a growing number of citizens in China/India gain more individual economic power (discretionary income)? As these consumers exercise their demand for goods will it make sense for US manufacturers to place manufacturing bases nearer to the point of consumption to minimize shipping and freight costs? Will the re-shoring wave ebb?

    Steven Linahan is a long-time, senior electronics manufacturing executive. He shares his views on reshoring as it relates to volume electronics, below.

    http://www.ventureoutsource.com/contract-manufacturing/reshoring-us-electronics-manufacturing-hype-volume-production/

    Again, I’m pro reshoring, pro U.S. manufacturing, so long as information is gathered so that assumptions and decision can be made using sound judgement.

  2. Thanks for mentioning the Reshoring Initiative. Approximately 50,000 manufacturing jobs have been reshored in the last 3 years.
    To help companies make better sourcing decisions, the non-profit Reshoring Initiative, http://www.reshorenow.org, provides for free a Total Cost of Ownership (TCO) software that helps them calculate the real offshoring impact on their P&L. If companies consistently evaluate all of the costs and risks, about 500,000 more manufacturing jobs would come back today. Current research shows many companies can reshore about 25% of what they have offshored and improve their profitability.
    Readers can help bring back jobs by asking their companies to reevaluate offshoring decisions. Suppliers can use the TCO software to convince their customers to reshore.
    You can reach me at harry.moser@reshorenow.org.

    • Harry – Will you please name your research source or, can you provide a link to the URL? As we discussed previously, there is a lot of hype in some circles promoting reshoring – for either incorrect and/or emotional reasons with alternate agendas. And, to the claim some studies claim OEM executives can save up to 25% when re-shoring if true TCO is considered, it would be interesting to see this type of information broken into end-product silos (e.g., wood furniture, rubber, electronics products…). Savings of 25% incurred through re-shoring might be true for some product markets, yet may not be achieved in others. I encourage readers of this thread to also read the following:

      http://www.ventureoutsource.com/contract-manufacturing/benchmarks-best-practices/electronics-assembly/outsourcing-decisions-yes-or-no

      Whether reshoring or nearshoring, manufacturers can still be outsourcing. And, outsourcing is based on removing fixed assets from the OEM’s books. It is this removal which helps drive OEM ROI and competitiveness. (Monies can be invested elsewhere, such as R&D, additional sales depth…)

      For instance, if two companies in similar markets offer competing products and one company is performing activities in-house while the other company is outsourcing its none-core competencies (think: manufacturing), variable costs (VC) and revenues (R) can be equivalent for both companies.

      But, when the more competitive company outsources and he no longer needs to directly support a factory (plant), property and equipment (P,P&E) he also does not have the overhead operating costs associated with performing activities in-house. Therefore, the competing company also has lower fixed costs (FC) and an overall lower total cost (TC) of doing business, where: VC + FC = TC

      Outsourcing manufacturing may not always be the most suitable strategy for all manufacturers just as reshoring may not always be the most suitable.

      There is a great exchange on Linkedin in the ‘Lean Six Sigma’ group on this topic. Readers will locate Google: :Just how risky is it to outsource manufacturing overseas and what are the hidden costs?”

      URL: http://www.linkedin.com/groups/Just-how-risky-is-it-37987.S.234597473?goback=.gmp_37987.gde_37987_member_234714502

      One poster to the Linkedin thread coined the phrase ‘rightsourcing’ when deciding whether to insource or outsource or offshore or nearshore or reshore. He was validating another post that indicated a one-size-fits-all approach will not guarantee success to all manufacturers.

      Surely you advocate it is best for manufacturing executives to collect adequate information from alternate sources/viewpoints when tasked with sourcing decisions.

      Mark Zetter, President
      VentureOutsource.com
      More://ventureoutsource.com/mz
      Linkedin: http://www.linkedin.com/pub/mark-t-zetter/34/235/a9


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