How to Help Your Customer Objectively Decide Harry Moser Mold Expo - PowerPoint PPT Presentation

To Offshore or Reshore: How to Help Your Customer Objectively Decide Harry Moser Mold Expo President 11/6/19 Reshoring Initiative

Canada/U.S.? ⚫ Most of my data is for the U.S. ⚫ However: ⚫ U.S. reshoring creates opportunities for Canada, esp. Windsor/Ontario ⚫ @ 0.76 USD, Canadian competitiveness is: ⚫ Quite good in the U.S. ⚫ Better than U.S. against China and others.

Definitions ⚫ Reshoring/Backshoring/Onshoring/Insourcing: Bringing back manufacture of products that will be sold or assembled here. ⚫ FDI: Similar logic. Different owner. ⚫ Localization. Producing near the consumer. ⚫ U.S. potentially the biggest beneficiary. 3

Flawed Company Economic Models 60% of manufacturers: ⚫ Apply “rudimentary” total cost models ⚫ Wage Arbitrage ⚫ PPV (Purchase Price Variance) ⚫ Landed Cost ⚫ Ignore 20% or more of the total cost of offshored products Source: Archstone Consulting survey, American Machinist Mag., 7/16/09

Trends Favoring Domestic Sourcing ⚫ eCommerce: Requires immediate replenishment ⚫ Heavy retail discounting: Requires lower inventory, smaller MOQ ⚫ Preference for Made in USA: Helps with volume/margin ⚫ Mass and local customization: Requires quick response ⚫ Lean: Commitment to eliminating waste ⚫ Trade dispute ⚫ Advanced Manufacturing Sources: Mostafiz Uddin, Dhaka Tribune; Bill D’Arienzo, Apparel Magazine; Janice Wang, Sourcing Journal, Reshoring 5 Initiative

Industry 4.0 ⚫ Advanced manufacturing favors developed countries: ⚫ Less labor/unit of output ⚫ Required labor is higher skilled with smaller % wage difference vs. developing countries ⚫ More capital intense. Equipment is as or more expensive in other countries due to VATs. ⚫ Enables fast, customized customer response, impossible from Asia 6

Unit Labor Costs Rising in China

Costs Converging ⚫ “There is not much of a difference between the costs in China and the United States.” ⚫ “You have to have a very good case today to justify producing something in China and shipping it to the U.S.” Source: NYT, Kim Fausing, CEO, Danfoss

Automotive OEMs/Suppliers Move Towards Localization ⚫ Factors: tariffs, trade restrictions, trade wars, Brexit ⚫ Regional supply chains = more stability ⚫ Offshoring for cheap labor no longer sustainable economically/politically ⚫ Automation leveling the playing field vs low cost labor ⚫ OEM / supplier increase in collaboration/joint ventures to share knowledge, costs, shorten time-to-market Source: Automotive World, “Automotive OEMs and suppliers move towards regional production”, Aug. 6, 2019, https://www.automotiveworld.com/news-releases/automotive-oems-and-suppliers-move-towards-regional- production/

Reshoring + FDI Mfg. Job Announcements Cumulative Source: Reshoring Initiative Library

Manufacturing is Beating the Trend by about 3.3M BLS Manufacturing Employment, 000s 20000 18000 16000 Historical Thousands of Jobs Current 14000 Expon. (Historical) 12000 10000 y = 18486e -0.031x R² = 0.9123 8000 6000 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Year

The Reshoring Initiative Provides ⚫ Online Library of 6,000+ reshoring articles ⚫ Case Study template for posting cases. ⚫ Free Total Cost of Ownership (TCO) software for: ⚫ Companies for sourcing ⚫ Suppliers of parts and equipment for selling ⚫ Import Substitution Program ⚫ Supply Chain Gaps Program ⚫ Competitiveness Toolkit ⚫ Statistics from TCO and Library databases

TCO Comparison Example

Some Total Costs other than Price ⚫ Hard: ⚫ Duty, fees, insurance ⚫ Freight ⚫ Carrying Cost of Inventory ⚫ Travel: Select, start-up, audit ⚫ Inventory handling vs. JIT ⚫ Risks & Strategic: ⚫ Emergency air freight ⚫ Innovation ⚫ Quality ⚫ IP risk ⚫ Opportunity costs ⚫ Made-in-USA

Some Mold-Specific Factors ⚫ Mold component CAM files ⚫ Ease of Revisions ⚫ Part accuracy ⚫ Cycle time ⚫ Mold maintenance ⚫ Mold life ⚫ IP risk

Deming on Total Cost “End the practice of awarding business on the basis of price tag. Instead, minimize total cost .” Source: “4 th Key Principle for Management,” Out of the Crisis , W. Edwards Deming

How Large are the Hidden Costs? RESEARCHER/BASE HIDDEN COSTS, % of Price Six U.K. manufacturers 25-50% European auto industry 15%+ re ICB (Boards) Parker/Dewhurst 24% Booze & Co. 17.5% Prof. John Gray, More than price difference in Ohio State U. cases studied Reshoring Initiative 15-25%

PPV and Landed Cost Miss a lot of TCO 120% 100% 13% 23% 80% 60% 100% 87% 40% 77% 20% 0% TCO LANDED COST PURCHASE PRICE 18

Chinese Ex Works Price, % of U.S. Source: Reshoring Initiative TCO Estimator user database 19 Source: Reshoring Initiative TCO Estimator user database

Chinese Price and TCO, % of U.S. Chart Title 12.0% 10.0% Price % 8.0% TCO % TCO w/15% Tariff 6.0% 4.0% 2.0% 0.0% 0% 25% 50% 75% 100% 125% 150% 175% Source: TCO user database

Injection-Molded Plastic Footwear ● China to Hazelhurst, GA ● $25 million total combined investment ● Up to 250 jobs ● Reasons: ● Walmart pledge ● Redesign to minimize labor ● Automation ● Rising wages and fuel costs ● Tariffs Sources: Kavita Kumar. St. Louis Post-Dispatch . “ Making shoes in the U.S.? An Overland Company Finds a Way. ” January 11, 2014. 21 http://www.stltoday.com/business/local/making-shoes-in-the-u-s-an-overland-company-finds/article_ba482a99-5615-5e98-84c1- 21 9ffe2b8fd06c.html

Children’s Toys ● China to Hudson, OH ● 50 jobs ● $3 million investment in new injection molding technology ● Reasons: ● Freight cost ● Rising wages ● Image/brand ● U.S. price of natural gas, chemicals, electricity Source: Rachel Abbey McCafferty, “ Little Tikes growing after shifting production from China to the U.S. ” Plastics News. August 27, 2013. 22 http://www.plasticsnews.com/article/20130827/NEWS/130829941/little-tikes-growing-after-shifting-production-from-china-to-us 22

Injection-Molded Plastics ● Denver, CO ● Contract manufacturer benefited from reshoring ● $2 million investment in machinery ● 200 employees ● Reasons customers reshored: ● R&D ● Lean ● Supply Chain Interruption Risk ● Higher productivity ● “ Cradle to grave ” service 23 Sources: http://bluetoad.com/publication/?i=172739&p=10 23 http://plasticsnews.com/headlines2.html?id=24393 http://www.plasticstoday.com/articles/intertech-adds-two-presses-central-chiller-response-reshored-business022520131

Custom Injection Molder • Reduced delivery time by reshoring • Delivery times for customers cut from 6 months to 6 weeks • Customer’s sourcing: • Was 1 million parts per month from China • Now 3.5 million parts per month from MDS • Faster delivery time and consistent quality has helped fuel growth Source: MDS adds new LSR press to meet rising demand, 24 http://www.plasticsnews.com/article/20160329/NEWS/160329809/mds-adds-new-lsr-press-to-meet-rising- 24 demand#utm_medium=email&utm_source=pn-daily&utm_campaign=pn-daily-20160329&email_pndaily

Plastic Molding ● Poly Tech purchased a plastic injection molding facility in Prairie Grove, AR in 2012 ● 46 jobs since 2012, up to 10 more to be added ● $7 million/year in sales of reshored products ● Walmart announced its US manufacturing initiative ● Sales shot up immediately ● Suppliers began looking for ways to reshore plastics manufacturing from China ● Expects to do $20 million in sales by 2020 25 Source: Kim Souza, “ PolyTech gears up for growth aided by Walmart manufacturing push “ , The City Wire . August 13, 2014. 25 http://www.thecitywire.com/node/34260#.Vc7a1njlc64

Plastics Injection Molding ⚫ China to Santa Rosa, CA ⚫ Medical and Telecom customers ⚫ 4+ customers reshored, including JDS Uniphase and ECO Funnel™ ⚫ Reasons: ⚫ Transport costs up ⚫ Wages up ⚫ Quality issues common and difficult to handle 26 Source: Design2Part mag, Yes, You Can Go Home Again, Say Some Manufacturers by Mark Shortt 26

⚫ 50% of Frisbee production ⚫ China back to CA and MI ⚫ 8 jobs added

Promote Reshoring Several U.S. molders/moldmakers promote reshoring on their websites: Benefits, how, why, etc. 28

Canadian Cases ⚫ Reshoring ⚫ FDI ⚫ Kept From Offshoring

Circuit Boards ⚫ Woodridge, IL ⚫ Supplies heavy equipment companies ⚫ Had quality issue with a Chinese component ⚫ Found local IL source ⚫ Result: ⚫ Quality problem fixed ⚫ Inventory cut by 94% ⚫ $60M order 30

Negative Issues Offshore: Top 10 Rank Negative Reasons Offshore # of times cited 1 Quality/rework/warranty 292 2 Freight cost 196 3 Total cost 147 4 Delivery 100 5 Inventory 91 6 Rising wages 88 Supply chain interruption risk/Natural 7 disaster risk/Political instability 78 8 Intellectual property risk 64 9 Communications 61 10 Green Considerations 53 Source: Reshoring Initiative Library, December 2017 .