Reshoring: Discovering the Total Cost of Manufacturing Ownership
Reshoring is the act of bring manufacturing back to the U.S. from lower-cost, overseas locations. Instead of just wondering about reshoring, more companies are taking action. According to the Reshoring Initiative, an organization founded in 2010 to help manufacturers determine the true costs of reshoring, 77,000 jobs were reshored to the U.S. in 2016, bringing the total number of jobs brought back from overseas to nearly 340,000 over the last six years.
In 2016 the Reshoring Initiative and the Precision Metalforming Association (PMA) established the National Reshoring Award to recognize companies that have effectively reshored products made primarily by metal forming, fabricating or machining. The winner of the first National Reshoring Award was Mitchell Metal Products of Merrill, Wisconsin. The company won the award for a reshoring project in 2016 that completed more end products with less lead time, compared to its offshore production. The company increased the production volume of a cultivator handle subassembly product from 4,500 made overseas to 30,000 made in Wisconsin.
“I was delighted the winning product was a relatively conventional item, instead of being an advanced aerospace or electronics component,” says Harry Moser, founder and president of the Reshoring Initiative. “This demonstrates how large portions of offshored work are eligible for reshoring.”
“By utilizing the total cost of ownership approach pioneered by the Reshoring Initiative, we have won a number of value-added contracts and brought work back home,” says Tim Zimmerman, president of Mitchell Metal Products. Right now, eight percent of our workforce is employed because of products we have reshored.”
To learn more about Mitchell Metal Products’ award-winning reshoring process, we asked Zimmerman the questions below.
Question: Please provide some background about this project.
We are a contract manufacturer and make products for original equipment manufacturers in a wide range of industries. For this particular product, we submitted a bid for the contract to manufacture to a U.S.-based manufacturer of lawn and garden equipment. This company had been purchasing this product from Southeast Asia sources for a number of years. The sourcing had been moved offshore in an effort to reduce their costs. During the bidding process, we therefore had to display our value compared to the total costs involved with, and compared to, the offshore supply chain.
What was the process for doing this?
We used the total cost of ownership (TCO) calculator designed by the Reshoring Initiative to document the total cost to our customer of its offshore source, versus purchasing from us.
Is reshoring a manufacturing process expensive to undertake?
There is significant cost involved with starting up production for a product such as this. Typically in our line of business, we quote piece price to the customer, along with tooling cost, to bring the product line to life. This complicates the process by which we earn the contract to produce products. Not only do we have to show our per-item cost is at least competitive with or superior to the offshore supplier, we also have to prove it is worth the customers’ investment in the manufacturing equipment needed to run production. We are rarely able to charge for the full value of this tooling. We are fortunate that we have a fully staffed tooling department within our company. The tooling department builds about 95% of the tooling, fixtures and customized work centers required for us to produce products. In this case, the amount of internal investment we had to make was equivalent to approximately one year’s worth of expected return on investment.
This particular product requires a large portion of our internal capabilities including progressive stamping, tube bending, wire forming, zinc plating and assembly. We also utilize two important subcontractors for this product. Therefore, our effort had to include most internal departments, two outside resources and our tooling staff. Early on we engaged our customer as well. By doing so, we created a team of talent that included members of our staff, the subcontractors and the customer. We worked together to minimize cost and reduce potential for failure to near zero.
What were your greatest concerns when you started?
This product has high aesthetic requirements. Much of the product has a high-gloss painted finish, which cannot be compromised. Our multi-company team worked ahead of production “go live” to create systems that assured the finish would meet customer requirements. In addition, we created an internal work center to reduce the amount of time required to perform a subassembly assembling operation. It was critical this work center met the throughput rate required. If it did not, our profit margin would be greatly compromised.
How do you use TOC to win contracts?
We regularly use TOC to prove the value of our products to our customers. We are able to do so, because we religiously track various key metrics that feed into the cost calculations—for example, “on time delivery to customer request” (99.8%) and “reject rate” (less than 0.002%). It is imperative we operate at those levels and above in order to maintain our competitive total cost advantage.
Overall, how much did reshoring help your bottom line/improve profits?
Reshoring was/is an important part of our success. It is not easy to assign a percentage to the impact it has had, but it is significant. I think it is safe to say our reshoring efforts have played at least a 25% role in our success since our group purchased Mitchell Metal Products from the founding family back in 2008.
Any advice for other manufacturers about the reshoring process?
The total cost calculator as supplied by the Reshoring Initiative is a tool that helps take the worry out of decisions regarding whether to reshore or maintain an offshore supply chain. Not every project is a candidate for reshoring. The TCO helps make a data-driven analysis possible. Trust the data.
According to the Reshoring Initiative, reshoring increased by about 10 percent in 2016, with 2017 data looking just as strong.
“Companies are becoming more aware of TCO and skilled workforce recruitment and training are improving,” says Moser. “We encourage readers to use our data and tools to help the U.S. improve these reshoring numbers.”