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Candidates for Cost Analysis

According to Moser, businesses

Fig. 1. Moser projected total cost of ownership (TCO) for a U.S.-made moderate labor con- tent part to be less expensive after five years than its Chinese-made counterpart.

as well. Fast reactions to market changes are more difficult, driving companies away from customization toward commoditization. Wiegers said inventory on-hand also affected the evolution of

Hubbardton Forge’s business. Storage space that could have been used for expanded production capacity was tied up with years’ worth of castings. “What really jumped out at us about calculating total cost of

ownership was how many variables affect cost,” Wiegers said. “When we looked into the cost of having a shortage or sitting on too much inventory, we saw it start to add up.”

should factor into their TCO analysis not just the current price of a compo- nent, but how its cost over the course of its life may change. As a default, he recommends calculating the cost over a five-year period, but that can be adjusted part-by-part. Factors to consider in multiple year projections include wage increases and currency appreciation compared to the dollar.

“It’s important for buyers to understand the price

today is not the price tomorrow because of exchange rates,” Kashanipour said. For a general part with moderate labor content, the

U.S. base unit price might be $100 compared to a Chi- nese base unit price of $70 in year one, but by year five, Moser estimates U.S. TCO to settle around $110, while the Chinese TCO reaches more than $120 (Fig. 1). Hubbardton Forge hopes to have identified a do- mestic die casting source in time to produce parts for its 2013 product cycle. But Wiegers said not all compo- nents—diecast or otherwise—will be taken away from its overseas suppliers. “Every part is different. In some cases [reshoring] might not make sense,” he said. At Navistar, many components are still sourced to over- seas suppliers, often when the end customer is overseas. “We first start by sourcing local components for local

consumption,” Kashanipour said. “As we build on that ex- pertise and quality system, we may start to look at exports.” Evaluating TCO for parts on a case-by-case basis can be

cumbersome, but after a few estimations, a company may start to notice trends in pricing based on part type. “We introduce 500 total parts (not just castings)

a year,” Wiegers said. “It might not be reasonable to plug every single part into the calculator, so it’s good to develop some guidelines.” For Hubbardton Forge, prime candidates for reshor-

ing include higher valued and heavier parts. Parts that are highly visible in the final assembly also are consid- ered for reshoring. “When parts are larger, they take up more ware-

house space. Freight costs more,” Wiegers said. “And consumers have perceived value in the parts of the fixtures they can see. Tey like to know when they are made in the U.S.” Rather than investing in new tooling for existing die

castings now produced overseas, Hubbardton Forge is focused on calculating the total cost of ownership for the 25-30 new castings added each year and securing a domes- tic supplier willing and able to produce its low volumes. “I feel like we are really close. I’m hopeful,” Wiegers

said. “We see there are certain advantages to having our parts made closer.” ■


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