Reshoring a keynote theme at AmerimoldReshoring a keynote theme at Amerimold
It seems that the hot topic of just about every convention these days is reshoring, and the recent Amerimold trade show and conference was no different. Harry Moser, founder of the Reshoring Initiative, gave the introductory keynote presentation to provide the latest on manufacturing's return to the U.S.
June 22, 2012
Labor costs in China, which were the primary driver for offshoring manufacturing a decade ago, have risen and narrowed the gap between China and the United States with respect to total manufacturing cost. In fact, Moser projects that labor costs between China and the U.S. will converge in 2015, thus reportedly negating any labor cost advantage that Chinese moldmakers have had over the U.S. in the past.
Additionally, Moser said OEMs are more aware now than ever before that the price of the mold isn't the true bottom line. Today, many mold purchasers are looking at all of their costs when purchasing molds from China, not just the quoted price. This total 'cost of ownership' (TCO) of the molds has caused many OEMs to re-think their sourcing strategy. "Sixty percent of the OEMs use a flawed economic model, only looking at the quoted price and the labor costs," Moser said. "Looking at all costs of molds purchased from China and brought to the U.S., we have the advantage."
Moser's web site contains a wealth of information to help OEM mold purchasers determine their TCO by using the its complimentary TCO Calculator. The calculator provides 29 cost factors that OEMs need to consider when making sourcing decisions. "We also have some 276 reshoring articles at the site to help you know who is reshoring. We're trying to make reshoring visible to OEMs and to understand that when you separate engineering from manufacturing you get poor quality," Moser stated.
He provided some statistics from his TCO database on seven case studies of U.S. vs. China, and while these are "very preliminary" observations, Moser believes they indicate a trend. When based solely on price, the U.S. averages 142% higher than China, including 1 tie (15%). When based on TCO, the U.S. averages 23% higher than China. For 40% of the cases, the U.S. TCO is lower than the Chinese TCO, an average of 37% lower. Moser concluded from this that up to 25% of offshoring might return if TCO is used instead of price.
A guest of the White House
In January of this year, Moser was invited to participate in the Insourcing Forum as an expert on American manufacturing and how to revitalize it. He was joined by other leaders from various industries and disciplines, as well as President Obama. In a morning roundtable discussion, President Obama asked Moser to explain what costs American companies often overlook in their sourcing decisions.
Moser cited the largest factors typically overlooked as emergency airfreight, travel, and the negative impact on innovation of separating manufacturing from engineering, which along with other factors, usually account for as much as 20% to 30% of a company's total cost of offshoring.
In a survey, Moser noted that the number one reason given by respondents for reshoring their manufacturing was wage and currency changes. The number two reason for reshoring were quality problems and the amount of rework required when the products were brought into the U.S. However, Moser stressed that if reshoring is going to happen in a big way, it's going to take effort on the part of the supplier base. "Help your customers objectively decide to bring their manufacturing back to the U.S.," he said. "Use the tools we provide on our website such as our TCO calculator and let us do the arguing for you."
'The U.S. never lost as much of its competitiveness as originally thought'
Stephen Dehoff, staff consultant with the firm Stress Engineering Services Inc. in the company's Mason, OH office, has worked with major OEMs to develop sourcing strategies for molds for more than 20 years. He followed Moser's presentation in the opening session, and concurred with Moser on many of his points. "There's a substantially flawed cost understanding and analysis by buyers," said Dehoff. "The U.S. never lost as much of its competitiveness as originally thought." Sidebar: Most Expensive Molds on the Planet Hall of FameStress Engineering Services' Dehoff has a number of case studies which he includes in his "Most Expensive Molds on the Planet Hall of Fame." Here's one example:Component: Flat piece of HDPE to attach RFID tags to palletsVolumes: 100 million/year shoot & shipCEO says "you can only source in China" China Mold price: $5000 (1 cavity, 250,000 shot life, cold runner, 34-second cyclePart price: $0.25 eachCapacity cost for 5 years: ~$7.5 millionPart costs for 5 years: $125 million Total for China: $132.5 million U.S. approach: 16-cavity, hot runner mold, 10-15-second cycle time, 5 million shot lifeCapacity cost: $1.5 million - $2 millionPart price $0.07-$0.10 each Capacity and Parts add up to around $51 million, an $81 million savings before even talking about freight, inventory, etc.
Dehoff called the double-standard that exists between U.S. moldmakers and Chinese moldmakers "absolutely atrocious," and added, "We tolerate, even encourage, practices from off-shore we don't tolerate from domestic sources...What would U.S. suppliers be able to do if we could operate the way the Chinese can operate?"
Dehoff noted that there's a disconnect between the unit cost of goods and the mold cost when making sourcing decisions. "Money generally equals better physics in injection molds and better physics equals better performance and lower product cost through higher productivity," he explained.
Some of the misunderstandings of mold purchasers include:
Confusing the mold price with capacity cost. "It's capacity cost that matters!" emphasized Dehoff. "Did you forget how to multiply?"
Ancillary costs including air freight. These add to the cost of the mold and often negate any cost savings the OEM thought they were realizing by going offshore. Dehoff wrote a paper, "Why CEOs Love Air Freight" that explains just how much air freighting molds from China adds to the price of the mold.
Travel costs for personnel to oversee the mold build, the cost of reworking the mold when it comes into the U.S. and doesn't make parts to spec. There are also the risks of having intellectual property copied or stolen.
OEM mold purchasers really have to do the math on any product for which they plan to source a mold off-shore, Dehoff said. He listed four good analyses and sourcing procedures for mold purchasers:
Look at mold and part cost together and dynamically as a system, never separate.
Look for and leverage spending for mold productivity.
Robustly consider the full range of cost consequences.
Allow U.S. suppliers to quote at the same quality level as off-shore competitors.
Trends in mold sourcing that Dehoff is seeing in his work with OEMs include:
Multi-nationals standardizing products are increasingly interested in standardized molds to limit product variability and leverage scale in molds as well as unit costs.
Larger multi-national scale requires larger, better managed mold builders operating in multiple geographies vs. the tradition of small owner-operated tool shops.
Western and western-trained entrepreneurs are increasingly opening up facilities in China and other emerging markets combining western knowledge and skill with lower cost labor forces.
The history of low quality off-shore molds is diminishing as knowledge and skill are transferred.
Dehoff concluded that for U.S. mold manufacturers, "Competitiveness has to be in the productivity of the mold."
The American Mold Builders Association also supports the Reshoring Initiative and Moser's efforts to keep manufacturing in the USA. For more information, you can visit www.amba.org for a "Know Your True Costs Brochure."
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