Reshoring becomes a data-driven discussion
Initiative’s TCO calculation determines the true cost of manufacturing
Offshoring manufacturing jobs to low-wage countries seemed like a good idea at the time. And if all you were calculating were wages, it was a no-brainer.
And that’s the problem, according to Harry Moser, who has devoted the last part of his professional life to a review of offshoring and a second look at whether it makes much sense at all.
Moser’s Reshoring Initiative is supported by a number of organizations, including AMT and NTMA. He spoke last week at the DMG/Seki Mori Customer Days in suburban Chicago and said the short-term look at wages obscured the real business implications of offshoring.
“There’s good reason to believe offshoring occurred with a herd mentality,” Moser told some of the 2,000 attendees at the Seki Mori event. “A lot of companies didn’t do a good enough job of analyzing what the implications would be.”
Companies can enter real costs and see what the full cost of production, shipping and delivery would be for production in the U.S. and elsewhere.
Moser’s goal is two-fold – to bring back more manufacturing to the U.S., and to do that based on an informed decision rather a wild guess. “I want to help change the mindset that offshoring is cheaper,” he said. “Protectionism is putting in major tariffs. This is actually opposite of protectionism. This helps manufacturers see the costs they’re really facing and motivating them to make better decisions with the situation they face. If it succeeds, then there’s less demand for protectionism.
It’s an objective tool, even though I passionately promote it. I’m an engineer who insists on doing things accurately,” he added. “It’s a solution to today’s supply chain problems. There’s fragility with the natural disasters and political instability. Wages are rising 20% a year in China. Low labor cost countries are having higher inflation rates. The U.S. dollar is declining and oil costs are soaring.”
It is the recent spike in oil prices, and the corresponding jump in fuel costs for transportation and shipping that again brought the Total Cost of Operation issue to light. A 30% increase in fuel costs could easily offset any gains initially realized through lower wages.
“Companies should reshore here to satisfy need of a market,” Moser said. “When you offshore, you force yourself to commoditization. Your response time has to be less. If you source locally, don’t have those problems, and you sell on service rather than price.”
Some things don’t fit into Moser’s calculator, however. “There are some things local suppliers can do on the service side,” he said. “You can take advantage of your proximity. You should respond to phone calls in a timely manner.”
- Edited by Gust Gianos, Plant Engineering, www.plantengineering.com
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Annual Salary Survey
Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.
There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.
But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.
Read more: 2015 Salary Survey