AME/APQC Benchmarking CoP - June 29, 2010

Re-Shoring: a Key to a Lean Supply Chain

and Robust Manufacturing

AME/APQC Benchmarking CoP - June 29, 2010

Harry Moser

Chairman Emeritus

GF Agie Charmilles

Re-Shoring Initiative

Customers: Why to Source Local.

Vendors: How to sell Local Sourcing.

Harry Moser

Chairman Emeritus

GF Agie Charmilles

Definitions

Re-shoring: bringing work back to the

U.S.

Antonym: Offshoring

Synonyms: Backshoring and Onshoring

Nearshoring: includes U.S., Canada &

Mexico

Re-Shoring Challenge:

Overcome 40 years of rapidly increasing offshoring!

Initiative Objectives

Promote the re-shoring trend

Provide tools to help OEMs make better

sourcing decisions

Help OEMs find competitive U.S.

sources

Document successful re-shorings

Offer prospective skilled manufacturing

workers hope for a lifetime career

The Re-Shoring Initiative:

Broad Industry Led Effort

NTMA/PMA Fairs: 5/12, Irvine, CA & Oct 29, Mashantucket, CT

Media coverage: WSJ, IW, CBS, CNBC, MMS, etc. (80+)

Publishing case histories

Online Library of 49 re-shoring articles

TCO Estimator for customer and vendor use

Support from:

Organizations: AMT, SME, AME, APQC, NAM, AMTDA, NIMS, FMA

Companies: AgieCharmilles, Big Kaiser, TCI Prec. Metals

NIST’s MEP

Interest from 1 U.S. Congressman

Change the Sourcing Paradigm

From: “Off-Shored is Cheaper”

To: “Local Reduces Total Cost of Ownership.”

Reduce Total Cost of Ownership (TCO)

Re-shoring’s benefits include:

Reduce pipeline and surge inventory impacts on JIT

operations;

Improve the quality and consistency of inputs;

Localize manufacturing near R&D and Marketing,

strengthening innovation;

Reduce IP and regulatory compliance risk;

Avoid foreign wage and currency surprises;

Minimize carbon footprint

All while staying cost competitive.

Reduce inventory example

LeadTime

Safety Stock proportional to

Total Cost of Ownership: Steel Gear

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

Direct Product Cost Overhead and Profit

Pkg., Freight and Inventory

Additional Quality Cost

End-of-life and prototype costs =

TCO (Total Cost of Ownership)

China

U.S.

Source: Gibb River Group

TCO Estimator Available

Easily estimate the Total Cost of Ownership

Compare on-shore to offshore cost

18 user-modifiable cost factors

Current and forecast costs

For parts and tooling

Status: in Beta test at customers and shops

Available!

TCO Estimator Cost Factors

FOB Price

Packaging

Duty

Freight: air, surface, all fees

Inventory: en-route, safety stock, obsolete

Rework/quality

Product liability

IP risk

Impact on innovation

Travel

Prototype

Wage inflation and currency appreciation

Example Assumptions

Chinese unit price $80.00

U.S. unit price $100.00

# units/year 12,000.00

unit weight, incl.

packaging, lbs 2.00

shipment size, units 1,000.00

product life, yrs 5.00

Packaging* 0.00

Payment on shipment Yes

Quality* 2%

* Chinese differential vs. U.S.

Product liability* 0.50%

IP risk* 2%

Innovation* 0%

Trips/yr 2

Prototype cost* $5,000

Obsolescence, mos.* 2%

Wage inflation* 8%

Currency appreciation* 5%

TCO Comparison Example

Comparison of U.S. and China TCO: Parts

40

60

80

100

120

140

1 2 3 4 5

Year

CO

ST, U

.S. $

China TCO U.S. TCO China FOB

“As China’s Wages Rise, Export Prices

Could Follow”

24% to 100% wage increases!

Source: New York Times, June 7, 2010

Offshoring contributes to Waste

Toyota Wastes Offshoring Contributes

Overproduction

Waiting Uncertain delivery/Inconsistent quality

Transport 12,000 mi. inbound, 6,000 return (boat ½ full)

Overprocessing Inspection of material and tolerances

Inventory In transit, safety stock, uncertain delivery and quality

Motion Travel, e.g. 2-3 weeks, 2-3X/yr

Defects Much higher than local sources

Other LCC supply chain issues

Multiple language barriers: English/Mandarin and

Mandarin/local dialect

ISO certificates often close to meaningless

Off-hours phone calls

Big turnover problems: was typically 80% at many

Indian companies in 2008

Re-Shoring Facilitates Clustering

Innovation

Partnering

Communications

Lean supply chain

DFMA

2010 NTMA / PMA Contract

Manufacturing Purchasing Fairs

A one-stop for OEMs to find competitive U.S.-

based sources.

50+ OEMs.

100+ job shops - machined, stamped and

fabricated parts, special tooling (dies, molds, jigs,

fixtures and gauges) and special machines.

May 12, 2010 Irvine, CA Fair

Who should attend the

Fairs/consider re-shoring?

Jobs out parts or tooling

JIT logistics with variable demand

Valuable IP

Tight regulatory and/or quality requirements

Partners with contract manufacturers

Committed to minimize carbon footprint

Committed to strengthening U.S. manufacturing sector

What Work to bring to the

Fair/consider for re-shoring?

Offshored or U.S. sourced work

Machined, stamped and fabricated parts, special tooling and special machines

Products to be sold in N. American market

High mix/low volume

New/quick launch/frequent engineering changes/short life cycle

Fragile

High risk, safety parts

Low labor content

Shipping cost high vs. labor costs

Results of May 12 Fair

57 Customers: 64% brought offshored work

113 shops

Many of both asked to test the TCO Estimator

15 existing re-shoring cases reported

Why Re-Shoring is a Hot Topic

A renewed focus on manufacturing by the White House and Congress

High international transportation costs

High foreign wage inflation

Expected Yuan appreciation

Low domestic capacity utilization

Focus on increasing employment

Growing awareness of IP and quality risks

Sourcing Moving Home

Companies are shifting some work home or close to home:

11 of 20 in N. America

2 of 10 in Europe

Source: 3PL Provider CEO Perspective 2008 survey of major logistics

providers.

Sourcing Moving Home

51% of companies surveyed found no financial benefit in

offshoring

20% brought sourcing closer in 2009

Of which 59% re-shored

Source: Supply Chain Solutions, Grant Thornton, Jan. 2010

survey.

312 responses.

Re-Shoring’s Visibility is Booming!

0

10

20

30

40

50

2000 2002 2004 2006 2008 2010

Year Article Published

# o

f A

rtic

les

Note: 1. 2010 calculated as 6X January + February count.

2. Measured by counting all relevant articles found via early March 2010 Google search on “re-shoring” “back-shoring”

and “on-shoring.”

Some Published Cases

ATMs

Bicycles

Electric hand drills

Hybrid batteries

Machine tools

Photo Voltaics

TVs

Water heaters

Why it is easier to re-shore than

to export more

There are distinct advantages for a U.S. company to compete here rather than offshore:

Absence of duty, freight and ocean packing

No Interest on pipeline and contingency inventory

Familiar legal and regulatory system

Simplicity of selling into huge home market vs. fixed costs of overseas sales and support

No exchange rate issues

Cost advantages of greater than 24%, similar to total direct labor % of mfg. cost

Timing: quick impact because already selling here

Requests of OEMs

Try the TCO Estimator

Help improve the Estimator

Make sourcing decisions based on TCO, not just price

Check our Library to see what your industry is doing

Consider how a stronger home market benefits your

sales

Attend the Fairs!

Requests of Vendors

Talk TCO

Use the TCO Estimator to help your customers

estimate the cost of on-and off-shoring

Help improve the Estimator

Attend the Fair!

Requests of All

Submit successful re-shoring cases

Good publicity

Good for the country

Why Re-Shoring is Good for America

Re-shoring can strengthen and broaden manufacturing and the

defense base

Re-shoring can strengthen SMEs -- the source of job growth

Re-shoring can help reduce the trade deficit, budget deficit and

unemployment

America Understands!

Best ways to create more U.S. jobs:

Keep mfg. jobs here: 18%

Lower taxes: 14%

Help small business: 12%

Green jobs: 12%

Infrastructure: 10%

Etc.

Source: Gallop Poll, Nov. 20-22, 2009

America Responds!

June 21 email from TN OEM

Offshores 70+% of components

Always felt guilty about offshoring

Preaches importance of mfg.

Read June Mfg. Eng re-shoring article

Will seek U.S. sources and reconsider in-house mfg.

Article: a “Kick in the seat of the pants.”

For more information on the Fair

Visit: www.PurchasingFair.com

Contact:

Rob Akers - Chief Operating Officer

National Tooling & Machining Association

9300 Livingston Rd,

Ft. Washington MD, 20744

Toll Free: 800.248.6862

Direct: 301.281.8009

E-mail: [email protected]

For more information on the

Re-Shoring Initiative

Contact:

Harry Moser

Initiative Leader

847-726-2975

[email protected]

Re-Shoring: a Key to a Lean Supply Chain

and Robust Manufacturing

AME/APQC Benchmarking CoP - June 29, 2010

Harry Moser

Chairman Emeritus

GF Agie Charmilles

Brought to you by www.VelocitySchedulingSystem.com