Rebuilding and Reshoring: What can contract manufacturers do?
Category: Supply Chain • Dec 14, 2020
U.S. import volume is about 130% of domestic production. A widening skills gap, underinvestment, weak marketing, and a narrow scope of core competencies threaten the growth of U.S. manufacturing. These challenges must be addressed so companies can thrive and meet goals for growth. The United States must have a larger skilled workforce with properly aligned skills and increased capital investment to foster innovation and boost competitiveness. Individual companies and the U.S. manufacturing ecosystem, as a whole, would benefit from an expanded range of core competencies to broaden business offerings and increase strategic advantage. In order for the United States to compete globally, companies must resolve these problems and commit to becoming more self-sufficient, resilient and agile.
Apprenticeship programs and ongoing training
Executives report that the insufficient quantity and quality of recruits negatively affects their ability to meet customer demand, maintain or increase production levels and implement new technologies to achieve productivity goals, thus slowing growth and impacting earnings. Postsecondary education and training is becoming increasingly important to skills alignment and building the national talent pipeline. A recent Brookings study showed 67% of jobs require some postsecondary education/training, not necessarily 4-year college. The most promising education/training for learners and the U.S. economy is job-focused postsecondary education and apprenticeships.
Consistent investment in equipment and technology, even in tough times, will drive competitiveness and productivity. Investing much less than our offshore competitors hinders U.S. companies’ long-term growth and the growth of the U.S. economy as a whole.
Developing broader competence
Our reshoring cases show that 67% of work was outsourced when offshore while only 13% was outsourced once it was reshored. A lack of broadly competent contract manufacturers is a significant barrier to increased reshoring.
Within your target industry, produce more of a complete product, more value added. Most U.S. contract manufacturers are competent in narrow ranges, e.g. molding, machining, casting, wire harness, small consumer electronics, etc. In contrast, many Chinese contract manufacturers will take on a complete complex product, even a major appliance, and carry it thru from design to packaging. Developing contract manufacturers of broader competence will require more industrial engineers/toolmakers and a large, flexible workforce that can be applied rapidly and effectively to each project.
Developing domestic outsourcing capabilities is paramount because many U.S. companies’ core competencies no longer include manufacturing. Re-establishing domestic manufacturing competence will bring back associated innovation capabilities and jobs.
Use reshoring as a marketing tool and communicate how you can help customers do so. For example, many companies have outsourced offshore and do not know the production process details of their product. Offer to develop and document all process details in exchange for an extended contract. Promote your reshoring successes and support of the reshoring transition. For example, The Rodon Group® offers reshoring assistance to customers who want to begin sourcing in the United States. Develop a specialization or achieve economies of scale and market to that industry. Be the best at a few products.
Demonstrate the advantages of local sourcing
Companies that have reshored report the problems that drove them to come back.
Be sure your behavior makes clear that the customer can overcome these problems by reshoring to you:
- Quality: Required
- Delivery: Achieve shipments much faster than offshore competitors, including shipment
- Inventory: Offshore wants to ship containers. Provide JIT.
- Communications: Offshore is 12 hours out of phase. Respond to emails and calls within minutes.
- Green: Document the green advantage of local sourcing
Programs like the Import Substitution Program (ISP) help to accelerate reshoring. ISP identifies and qualifies major importers of what you produce and helps you to convince them to source or produce more domestically instead. MEP’s (Manufacturing Extension Partnerships) can provide consulting on lean, workforce training, automation, etc. to close any cost gap.
Using TCO for selling vs. imports
When you find yourself competing with a lower priced offshore product, we suggest offering to help the customer compare the TCO of your offer vs. the lower priced offshore offer. Contract manufacturers can use the Total Cost of Ownership Estimator® (TCO) to make a strong case when selling against offshore competitors. Sixty percent of companies make sourcing decisions based on rudimentary metrics such as wage rate, ex-works price or landed cost, often resulting in a 15 to 30% understatement of actual offshoring costs. The TCO Estimator is a free online tool that helps companies account for all relevant factors—overhead, balance sheet, risks, corporate strategy and other external and internal business considerations—to determine the true total cost. A free online TCO tutorial is available to help you get started.
$60 Million Order–Selling Against Imports
Here is a real-world example of a company that used TCO to sell against imports. EMS contract manufacturer Morey Corporation was in pursuit of a $60 million ($15+ million per year for four years) electronics build opportunity vs. a lower priced Asian competitor. Morey, helped by the Reshoring Initiative®, used the TCO Estimator to show the customer that although Morey’s price was higher, its TCO was lower. Tony Woodall, VP of Sales, reported, “We used the TCO calculator from the Reshoring Initiative. This tool framed the costs and risks of both options and was a crucial piece to our winning strategy.”
See if reshoring makes economic sense for your company
The Reshoring Initiative’s tools and data can help contract manufacturers sell against imports. Resources can be found on the website (www.ReshoreNow.org).
It’s time for OEMs to do the math. Choosing U.S.-based manufacturing supports employees, suppliers, local communities and the national economy while increasing profitability.
To read more in Harry Moser's Rebuilding & Reshoring series, click here.