Rebuilding and Reshoring: Collaborative Partnerships
Category: Supply Chain • Dec 11, 2020
By Harry Moser, Founder/President, Reshoring Initiative®
Offshoring to China and elsewhere has cost approximately 5 million U.S. manufacturing jobs, contributed to wage erosion, and had a dramatic and negative effect on workers and the economy. For example, for every 100 jobs lost in manufacturing, there are about 700[i] indirect jobs lost, but the same number of lost retail jobs equals just about 120 indirect jobs lost. So the shuttering of an automotive factory would have a greater economic impact than the closure of a retail organization of the same size. As the United States reevaluates manufacturing, sourcing, and purchase decisions, due to tariff and pandemic-induced supply chain turmoil, we should consider the wide-ranging advantages of collaborative partnerships.
Increasing Cooperation between Trade Partners
Work is now flowing out of China, primarily to Southeast Asia. Here’s an opportunity for expanded cooperation via the United States-Mexico-Canada (USMCA) trade agreement to shift work from offshore to nearshore in North America.
Canada’s political stability, similarities to U.S. laws and culture, geographic proximity, favorable currency exchange rates, and technology savvy make them a good nearshoring choice. Mexico offers wage rates similar to China’s, minimal tariffs, low travel and freight costs, quick delivery, close technical support, and a large underutilized workforce.
The trade relationship between the three trade partners makes it important to consider Canada and Mexico’s trade deficits with Asia along with the United States. At the Forum & Expo Mexico Industrial Parks in Monterrey in September 2016, I urged Mexico to focus more on reducing its trade deficit with China and less on increasing its trade surplus with the United States. Figure 1 outlines how the three countries could benefit from increasing our partnerships.
From the U.S. perspective, Mexico and Canada provide greater partnership advantages than manufacturing in Asian countries. Forty percent of the value in product shipped from Mexico to the United States is U.S. content and 25% shipped from Canada is U.S. content. In contrast, only about 4% of the value of product shipped from China to the United States is U.S. content. See Figure 2. United States policy changes can shift work from Asian countries to the United States and as much as possible of the rest to Canada and Mexico.
For example, Wisconsin-based Evco Plastics has been adding generally lower skill jobs in its Mexican plastic parts plants, teaching additional skills (“upskilling”) in its U.S. plants, and downsizing in China. U.S. supplied raw materials account for 60% of costs in the Mexican plants and only 15% in the Chinese plants.
United States and all allies
The United States is considering rolling out an alliance called the “Economic Prosperity Network,” that would include like-minded countries, organizations, and businesses. This venture has the aim of working with U.S. companies to move jobs to U.S.-friendly countries like Australia, India, Japan, New Zealand, South Korea, and Vietnam, if they are unable to reshore into the United States.
The United States can build consensus with other developed nations that have similar concerns about Chinese trade. The EU, Japan, and United States have all publicly discussed decreasing trade dependency on China. The countries can collaborate and coordinate efforts to convince China to play by the WTO (World Trade Organization) rules.
The interests of the United States and our key allies are similar: both want to address unfair Chinese trade practices. Working in a collaborative partnership, we could file complaints about unfair practices and develop new rules for areas not covered well by the WTO rules. Together we can be more effective by leveraging our collective strengths. On this theme, on August 16, 2020, the Trump administration announced, “Back to the Americas,” a program to attract manufacturing from Asia to the Americas.
Companies, suppliers, employees, and communities
Like the United States does internationally with our allies, likewise should companies, employees, suppliers, and communities collaborate to form partnerships that benefit all stakeholders.
OEMs and suppliers must cooperate to achieve the benefits of local operation: resilience, engineering, manufacturing and communicating easily to optimize product and process. Clusters of three or four U.S.-based companies that, in aggregate, buy from and sell to each other shortening supply chains so that more of the content is sourced domestically from cluster partners. On incremental sales, in theory, each company gives up some margin but picks up volume. Ask the domestic supply chain to share the margin reduction on the incremental volume. Company earnings would be flat or improved. Employees, suppliers, community, and the company’s home market would all be strengthened.
Companies should strive to eliminate silos. Dr. W. Edwards Deming, American engineer and leading management expert in the field of quality, offered 14 key principles for management to follow to significantly improve the effectiveness of a business or organization. Deming’s 9th key principle recommends collaboration: “Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service.”
Job shop sales people are often told by procurement departments “the higher warranty and inventory costs from offshoring are not part of my budget.” Creating partnerships within the company by using TCO will help ensure that the needs of all departments are taken into account. Partnerships with other manufacturing technology suppliers can be beneficial as well. Challenge each other to develop solutions to reshoring challenges, and then invest in those solutions
Deming’s 4th principle deals with sourcing decisions: “End the practice of awarding business based on price tag. Instead, minimize total cost.” The Reshoring Initiative’s free online Total Cost of Ownership Estimator® can be found here.
Federal, state and local governments can be good partners too. The federal government allocated billions of dollars to encourage reshoring. The U.S. International Development Finance Corporation (DFC), created in 2019, is one of the best sources of this funding. DFC partners with the private sector to finance solutions to critical challenges, investing in the energy, healthcare, critical infrastructure, and technology sectors. DFC also provides financing for small businesses and women entrepreneurs to create jobs in emerging markets.
Rhode Island is amid an aggressive reshoring program. The partnership includes the Rhode Island Commerce Corporation working with OEMs, the state MEP working with suppliers, the Rhode Island Manufacturers Association (RIMA) engaging with the companies, and the Chafee Center for International Business at Bryant University supporting via data analysis, and the Reshoring Initiative.
To make a dent in the reshoring movement, it’s going to take all stakeholders doing their parts not just for them but also for the good of the whole. The Business Roundtable (BRT), a Washington, D.C.-based non-profit recently redefined its statement of purpose to promote “an economy that serves all Americans.” On August 19, 2019, BRT released a new “Statement on the Purpose of a Corporation signed by 181 CEOs who commit to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders.” The revised statement diverges from “shareholder primacy” toward an inclusive commitment to all stakeholders.
IMTS exhibitors, distributors, and attendees
AMT will be distributing a survey to seek opportunities for more reshoring: what OEMs want to source here; what the newest technology can make competitively here. We urge you to participate!
The not-for-profit Reshoring Initiative is made possible by the long-term partnership of AMT, NTMA and PMA, dgs Marketing Engineers, Gardner Business Media, GF Machining Solutions, Swiss Machine Tool Society, BIG KAISER, and dozens of other sponsors and clients.
The Reshoring Initiative is currently partnering with individual companies, MEPs (Manufacturing Extension Partnerships) in Illinois, Cleveland and Dayton, Ohio, Maryland, New York, and Rhode Island; and with EDOs (economic development organizations) to drive local reshoring. By 4Q20, the Initiative expects to be helping 100 companies reshore or convince their customers to reshore. Ask your local MEP or EDO to become partners!
Import Substitution Program (ISP): The ISP was created to convince and facilitate importing companies to source more domestically.
Supply Chain Gaps Program (SCG): The SCG program was designed to identify and fill U.S. supply chain gaps. The Reshoring Initiative has developed a list of targeted supply chain gaps and product categories where there is a large volume of imports but no or minimal domestic production.
Together we can collectively increase U.S. competitiveness. Find new partners for success at IMTS.com/SupplyChain. Send the Reshoring Initiative information on products you cannot find made domestically. The Initiative will work with companies, state economic developers, and the Department of Commerce to fill the gaps. Email Harry Moser for more information - firstname.lastname@example.org.
Rebuilding the Supply Chain
Whether you are an advanced manufacturer, job shop owner, or OEM, you are in the midst of your own supply chain challenges, uncertainties, and questions. To support you, AMT and IMTS are dedicating signiﬁcant staff and ﬁnancial resources to help you rethink, reengage, and reestablish supply chains. Visit http://www.imts.com/SupplyChain to learn more!
To read more in Harry Moser's Rebuilding & Reshoring series, click here.
[i] Economic Policy Institute, Jan 23, 2019, News from EPI, “Job loss In manufacturing has a large ripple effect on other jobs” https://www.epi.org/press/job-loss-in-manufacturing-has-a-large-ripple-effect-on-other-jobs/