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ManageMent
www.us-
tech.com Is Made in the USA Competitive in the USA? By Harry Moser and Millar Kelley, Reshoring Initiative
PCBs used in consumer electronics. The challenge is for the PCB produc- tion to come back at the same time as the end product assembly. A parallel strengthening of both is needed for either to succeed. Luckily, reshoring and foreign direct investment (FDI) opportunities in the U.S. are increas- ing for electronics intense products. Companies have begun to real-
T
ize that chasing cheap wages in low- cost countries in pursuit of higher profits may actually be killing their bottom lines. When they consider the impact of the hidden costs and risks offshore such as time to market, car- rying costs of larger inventories, the impact on innovation due to separa- tion of engineering from manufactur- ing, losses from stock outs, counter- feits and quality, more companies are finding that there can be sub- stantial cost savings and increased ease of production when sourcing in the U.S. The key is to be aware of all the
trends, and to use exacting total cost of ownership (TCO) analysis to deter-
oday, U.S. industry remains weak, or almost non-existent, in low-mix/high-volume small
mine where, how and what to reshore.
Reshoring Trends in Electronics Many of the top reshoring and
FDI industries in 2015 include or are related to electronics manufacturing. Transportation had the highest rate of returning manufacturing at #1; electrical equipment, appliances, components was #3; computer/elec- tronic products #8; and medical equipment #14. In 2015 alone, nearly 100 companies from these industries moved new manufacturing to the U.S. from offshore, with a reported 22,773 jobs created. In these sectors 349 companies have added 82,200 jobs since the 2008 recession. According to the Reshoring Ini-
tiative’s database, some of the top reasons for these cases were: govern- ment incentives, automation, cus- tomer responsiveness, quality, IP risk, lead-time, and freight. There are two perspectives on
U.S. reshoring: for companies the goal is to produce most profitably; for the national economy the goal is to provide more good jobs to more peo- ple. Companies should not discount
the latter, as that is what ensures a stable home market. Even though fewer jobs are required due to more automation, adding U.S. manufac- turing has great value in the form of improved innovation, many manu- facturing jobs added, and additional jobs via the multiplier effect (now be- lieved to be 3.6, according to MAPI). Corporate culture has begun to place more emphasis on social re-
Companies have begun to realize that chasing cheap
wages in low-cost countries in pursuit of higher profits may actually be killing their bottom lines.
sponsibility, including protecting the environment, workers and the do- mestic economy. These values are all more easily achieved when producing or sourcing in the U.S.
Reshoring and FDI Cases One pioneer is Zentech Manufac-
turing, Inc., an electronics contract manufacturer that specializes in the design and manufacture of complex electronic and RF circuit cards and as- semblies for multiple industries. In 2012, Zentech began focusing on reshoring because, according to Presi- dent and CEO Matt Turpin, “CEOs and CFOs are realizing that total cost of ownership (TCO) for offshore man- ufactured goods is rising even faster than per-unit costs for the same items.” Since its emphasis on reshoring, Zentech experienced a 50 percent growth in its customer base in 2012, and has continued to grow year over year since. Most people are aware of the
larger OEMs that have moved pro- duction back to the U.S. — GE, Whirlpool, Apple/Flextronics, and many automobile manufacturers. Some of the newest larger-scale reshoring/FDI actions include: com- puter chip maker ams AG, moving from Austria to New York, adding 1,000 new jobs; BSH Home Appli- ances, moving from Germany to North Carolina, creating 460 jobs; re- frigerator maker Haier Group, mov- ing from China to South Carolina, creating 410 new jobs; Eldor Corp., which makes electrical systems for hybrid cars, moved from Italy to Vir- ginia and North Carolina with 350 jobs added; and power and automa- tion technologies ABS Group, moving from Switzerland to Mississippi and Tennessee, adding 300 jobs.
Making Better Sourcing Decisions
Use TCO. Companies need to use a tool like the Reshoring Initiative’s free online Total Cost of Ownership Estimator® to quantify the costs that are “hidden” when companies make decisions based mainly on ex-works
price. Begin with the offshore product that causes the most pain (quality, de- livery, inventory, IP risk, stockouts, travel, etc.) Use of TCO typically clos- es the price gap between domestic and offshore sourcing by 15 to 30 percent of price. User data suggests that about 25 percent of what is now off- shore would be reshored if companies switched from price to TCO.
Follow up with lean. If offshore still looks more cost-competitive, the difference can often be made up with improvements through lean, automa- tion, training, DFMA etc. Low rates of capital investment in recent years have resulted in much slower in- creases in productivity. Investing more in automation and training will generally reduce total cost.
Look at the trends. Determine what the patterns are in specific in- dustries, see where other companies have found cost advantages. Locate, integrate and collaborate with grow- ing ecosystems and supply chains. Fill gaps in the domestic supply chain. Datamyne, local MEPs, and the Reshoring Initiative’s sortable database of over 1,000 companies are good resources for this purpose.
Focus on the U.S. market. At any given level and mix of demand for products, the only ways for the U.S. to increase manufacturing are to ex- port more or import less. Importing less (reshoring and FDI) is more effi- cient, because U.S. manufactured products are about 30 percent more price-competitive selling against im- ports in the U.S. than they are com- peting in overseas markets. To look at possible price com-
parisons, there is a TCO differential — incremental costs for exporting: duty, freight, carrying cost, and trav- el. A $100 product made in the U.S. would cost $115 if sold in China. The same $100 product made in China would sell in China for $85. The dif- ference arises because exporting adds, on average, at least 15 percent to the total cost of a product exported from either country.
Support programs and politi- cians that support U.S. manufac- turing. Many factors must be aligned to strengthen U.S. manufac- turing. The main challenges are fill- ing the skilled workforce gap and fos- tering a national focus on making the U.S. more competitive by reducing our trade deficit. A 25 percent reduc- tion of the trade deficit would create 1 million manufacturing jobs! More progress requires further reforms such as lower corporate tax rates, a value-added tax and a lower USD. Reshoring is a challenge, but
benefits are clear when analyzing TCO. When successful, PCB and EMS providers in the U.S. can offer unique advantages of quality, securi- ty, speed, and flexibility over offshore suppliers. r
July, 2016
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