Presidents Message - The Case for Reshoring

The Case for Reshoring

by Benjamin Rand

Harry Moser is on a mission. The Chairman Emeritus of machine tool maker GF AgieCharmilles founded the Reshoring Initiative to bring back manufacturing work that was outsourced to other countries.  Moser contends that many American manufacturers that have outsourced manufacturing have been misled by an incomplete understanding of their costs. As a result, offshoring, at best, is less profitable than businesses believe and, at worst, is an outright money loser. A 2009 survey by Archstone Consulting agrees, concluding that 60% of manufacturers use “rudimentary total cost models” that ignore 20% or more of the cost of offshored manufacturing. Moser himself estimates that many companies consider as few as 4-5 cost factors before deciding to offshore. 

The basis of the Reshoring Initiative is Total Cost of Ownership (TCO), defined as the full cost to an organization to off-shore the manufacturing of a product. This concept goes back at least as far as W. Edwards Deming, the quality guru, who advised companies to “end the practice of awarding business on the basis of price tag. Instead, minimize total cost.” The Reshoring Initiative identifies 29 discrete cost factors for companies to consider ranging from the obvious - labor rates and shipping costs, to the subjective - the “political stability of the country” or the “impact on innovation of distance from manufacturing.” These latter factors may be difficult to assess, but they are nonetheless real risks with real costs or potential costs for most offshored manufacturing. The Reshoring Initiative provides a free TCO Estimator on its website (www.reshorenow.org) that allows companies to consider and compare all 29 cost factors over multiple years to determine if offshoring really would provide the lowest TCO. Users can pick and choose which factors they will use, so if you don’t feel the “political instability of the country” is an issue, or you are uncomfortable estimating it, you can simply skip that factor for purposes of your analysis.

Many companies are starting to agree with Moser, including General Electric Co., NCR Corporation, Olevia and Emerson.  Even smaller manufacturers are reshoring. According to the Wall Street Journal, Farouk Systems, based in Houston, Texas, is reshoring manufacturing from Shenzhen-based Fenda Electrical Co. due, in part, to problems with knockoffs.  Stories abound of quality problems with offshoring which can dramatically increase cost and delay delivery. I personally had a $1.5 million offshoring problem when a filtration company I was running sourced what we believed was 316L stainless steel from a Chinese supplier. We received and tested samples before approving the supplier.  But, when the steel began to dissolve in our customer’s process, we learned that the quality certificates that accompanied each production shipment were fraudulent and the steel was not 316L. 

Moser’s crusade matters on many levels. Manufacturing is still essential to the economy of the United States. Many of the manufacturing jobs lost to offshoring could conceivably be reshored if companies considered their TCO carefully. Here in our area, the Reshoring Initiative matters for WNY manufacturers who are supplying OEMs, since the TCO Estimator may help those suppliers retain or regain business that would otherwise be mistakenly offshored by their OEMs.  It matters to WNY manufacturers who are considering offshoring themselves and have not considered their true total cost of ownership. 

“I won’t stop until my Reshoring Initiative brings hundreds of thousands of jobs back to the U.S. and manufacturing becomes a career choice for the next generation,” says Moser.  No wonder he was inducted into IndustryWeek’s Manufacturing Hall of Fame in 2010.