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in China, his company began to appreciate the total cost of a part, including third party quality inspec- tion, defect rework, duties, barriers to international shipping, freight and additional office personnel to manage the inventory, purchasing orders and accounting. Peerless also sees value in being

Navistar sources components from suppliers around the globe and makes its buying decisions based on total landed cost.

China’s cost advantage.

3. Multinational companies are likely to devote more of their capacity in China to the devel- oping Asian market.

4 Other nations with low labor costs, such as Vietnam, Indone- sia and Mexico, will not be able to absorb the full scale of goods manufactured in China.

5. T e costs of transportation, duties, supply chain risks and in- dustrial real estate will minimize the Chinese advantage. In 2010, television mount maker Peerless Industries, Aurora, Ill.,

took a long look at its numbers and determined it was justifi able to stop outsourcing 30% of its manufacturing to low cost countries. Now, it produces 100% of its metal components in-house. “China is inexpensive, but the

logistics add cost,” said John Potts, executive vice-president of Peerless Industries. “Everything has to be man- aged logistically. T en there are quality issues. When an issue arises here [in Peerless’ facility], you oversee the entire process.” According to Potts, after sev- eral years dealing with suppliers

CONGRESS, PRESIDENT FOCUS ON TCO In an effort to increase manufacturing jobs in the

U.S., politicians have been working on policy to encour- age companies to reshore production. Part of that poli- cy includes a Total Cost of Ownership Estimator, which is a free online tool that aggregates a manufacturer’s costs and risk factors and sums them up into one fi gure for simpler, more objective sourcing decisions. The tool is provided by the Reshoring Initiative, an

industry-led effort founded by Harry Moser to bring manufacturing jobs back to the U.S. The total cost of ownership (TCO) concept is included in the bipartisan Bring Jobs Back to America bill fi rst introduced in the 111th

Congress and reintroduced in the 112th Congress.

It was also part of the “minibus” spending bill, which includes the 2012 budgets for the U.S. Depart- ments of Agriculture, Commerce, Justice, Science, Transportation, and Housing and Urban Development. In January, President Obama

hosted a daylong Insourcing Forum at the White House, which featured

more fl exible to make changes to product design or volumes on the fl y. It’s this advantage Hubbardton Forge is striving for with domestic cast- ing sources. Its largest casting order is 1,000 pieces generally, and most other orders are in the low hundreds. T e minimum order quantity from its Chinese source is 500, forcing the company to order four years’ worth of inventory at a time for many of its products. “For us, that’s looking way too far

out,” Wiegers said. “We are worried that in four or five years, that fixture won’t even be in our line anymore. We are focusing on who domesti- cally does well with low volumes [in diecasting], to see who is willing to do 100 pieces or even less.”

discussions led by American industry leaders and experts, including Moser and Hal Sirkin of the Boston Consulting Group, cabinet level offi cials, and Vice President Joe Biden. “Throughout the day, a common theme emerged,” Moser said. “Many American companies make sourcing decisions based on price and ignore the total cost of sourcing offshore.” Obama pledged to further his administration’s efforts

Harry Moser (far right) speaks at the Insourcing Forum in January.

to help U.S. manufacturers take advantage of the current economic climate. “American workers are the most productive and com- petitive in the world right now,” he said in his closing remarks. “When you factor in all the costs, we have an outstanding market; we have the most innovative entrepreneurs, the best research universities. Part of what our ses- sion this morning was all about was just helping people to take a look at what this moment is and where we’re going to be fi ve years from now.” 


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