How to Reshore Manufacturing to Maryland

To reshore or offshore? How to objectively decide.

MEDA - Maryland Economic Development Association

Sandy D’Amico

Media Advisor to

Reshoring Initiative

Definitions

Definitions:Reshoring/Backshoring/Onshoring/Insourcing:Bringing back the manufacture of products that will be sold or assembled here.

Localization – producing near the consumer!

We assist companies to more accurately access their total cost of offshoring with our Total Cost of Ownership Estimator™

Geographic sourcing alternatives

The Concept also Worksin other Countries

Why offshoring occurred

• Cheap labor

• More efficient container shipping

• Improved communication and data sharing

• Herd mentality in which companies followed each other offshore

Corporate expectations of offshoring:

• Achieving lower prices for customers

• Pursuit of greater gross profit margins

Flawed Company Economic Model using PPV and landed cost

As many as 60% of companies made the decision to offshore based on miscalculations, never taking into consideration the total cost of ownership (TCO) including all of the hidden costs and risks of offshoring

60% of manufacturers:

Apply “rudimentary” total cost models

Ignore 20% or more of the total cost of offshored products

Source: Archstone Consulting survey, American Machinist Mag., 7/16/09

Indexed Unit Labor Costsin the Manufacturing Sector

of Selected Countries

“Manufacturing Expectedto Return to America”

“Majority of Large Manufacturers Now Planning or considering Reshoring from China to the U.S.”

“We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015”

“take a hard look at the total costs”

Top three factors Labor costs (cited by 43 percent of respondents)Proximity to customers (35 percent)Product quality (34 percent)

Source: Boston Consulting Group

The Industry-Led Initiative Provides

Free Total Cost of Ownership (TCO) Software for companies and suppliersCompanies for sourcingSuppliers of parts and equipment for selling

Online Library of 1500+ reshoring articlesStatistics from TCO and Library databasesCase Study template for posting casesSolutions to major supply chain problemsEconomic development plan based on local

sourcingMotivation for skilled manufacturing careers

TCO Estimator benefits

Provides a single TCO for each source Flexible: values are 100% user selected. Broad:

29 cost factors. Via pull down menus you automatically insert:

Freight rates for 17 countriesDuty rates for parts or tools, e.g. molds

Current value and 5 year forecast of TCO. Easy to use:

Explanations and references to help select values. Instruction Manual.

Free

TCO Comparison Example

Why Reshoring Is Happening

Higher wages in China

Higher global energy prices driving up shipping cost

Increased use of Total Cost of Ownership (TCO) – Includes costs, risks, and strategic factors that were ignored over the past few decades

TCO = more obvious costs + “hidden” costsTotal Cost = True Cost

Reshoring is the logic of local sourcing

TCO is the methodology you use to decide what to reshore

Example: Locks

Reshored from China to Milwaukee, WI in 2010 100 jobs Productivity 6X as high as China Plant operating at capacity for first time in 15 years Reasons:

Total cost and more competitive overall cost structure

ControlCustomer serviceEconomic benefit to Wisconsin

Sources: “Master Lock Highlighted in State of the Union Address for Moving Jobs Back to U.S.” January 24, 2012. http://www.masterlock.com/about_us/Master_Lock_Highlighted_In_2012_SOTU_Address.jsp.Uttara Choudhury, First Post. “U.S. firms ‘reshore’ manufacturing as costs rise in China, India.” March 29, 2013. http://www.firstpost.com/world/us-firms-reshore-manufacturing-as-costs-rise-in-china-india-678613.html. MSNBC.com 6/29/11 Scott Malone

Reshoring More Effectivethan Exporting:

U.S. is Much More Competitive at Home!

  

Where Sold

U.S. China

Where Made

U.S. $100 $115China $100    $85

Difference       0      30%

Based on TCO being 15% higher for exports

Advantages of Reshoring for Businesses

By using TCO companies can reshore about 25% of what they offshored and improve profitability

Refocusing on the world’s largest consumer market

Our companies are 30% to 40% more competitive here in the U.S. vs. e.g. in China

Appeal to consumer demand for “Made in USA”

Better long-term corporate stability

Advantages of Reshoring for the Nation

When those companies bring back 25% of what is offshored = 1 million manufacturing jobs!

Reshoring improves U.S competitiveness by strengthening R&D, promoting innovation and reducing IP loss.

What can the nation do? Focus as much on reducing imports (reshoring) as increasing exports

Reshoring Enables Innovation

Profs. Pisano and Shih of Harvard Business School recently reaffirmed that U.S. innovation declines when manufacturing is offshored because the partnership of manufacturing and engineering is weakened.

The TCO Estimator factors in innovation, keeping manufacturing close to U.S. engineering.

Keeping manufacturing local helps keep engineering local

Example: Water Heaters,Refrigerators, Washing Machines,

Dryers 1300 jobs and $800 million invested to renovate

facilities in Appliance Park in Louisville, KY Reasons:

Redesign made reshoring possible: Energy efficiency improved, warranty costs down and retail price down

Tax incentives High-tech new model: IP risk Ease of design collaboration with workers: retail price -

20% Chinese cost: -30% becomes +6% considering inventory

and delivery problemsSources: Steve Minter, Industry Week. “Witnessing a Rebirth.” July 11, 2011. // Charles Fishman, The Atlantic. “The Insourcing Boom.” November 28, 2012. // General Electric Company, R&D Magazine. “Debunking the Myths About Outsourcing.” July 20, 2012. // Paul Davidson, USA Today. “”Some manufacturing heads back to USA.” August 6, 2010.

Sources: Steve Minter, Industry Week. “Witnessing a Rebirth.” July 11, 2011. // Charles Fishman, The Atlantic. “The Insourcing Boom.” November 28, 2012. // General Electric Company, R&D Magazine. “Debunking the Myths About Outsourcing.” July 20, 2012. // Paul Davidson, USA Today. “”Some manufacturing heads back to USA.” August 6, 2010.

Electric Motors for Chevy Spark EV

● Reshored production and development to White Marsh, MD and Wixom, MI from Europe

● Total investment in MD ~$250 million● 20 employees, projected 190● Reasons:

● Proximity to market● Technology● Skilled workforce● Design and process control● Quality, reliability, and performance

Source: Gus G. Sentementes, The Baltimore Sun. “Made (once again) in America.” February 27, 2011. Jamie Smith Hopkins, The Baltimore Sun. “General Motors unveils its new electric motor in White Marsh.” April 16, 2013. Area Development Online News Desk. “General Motors Begins Manufacturing Electric Vehicle Motors at its White Marsh, Maryland, Production Plant. April 16, 2013.

Example: Electronics Contract Manufacturing - PCB

Many companies switching from Asia outsourcing to Zentech in Baltimore, MD

Reasons:Rework, Warranty, QualityTravel Cost/Time or Local Onsite AuditWages up overseasTotal cost = cheaper in the U.S.Many American companies specialize in highly

technical electronics, or biomedical diagnostic equipment where quality control and engineering collaboration are more significant factors.

Source: The Baltimore Sun Made (once again) in America Woodlawn electronics maker sees growth this year as effect of "re-shoring" debated in U.S., and Made in USA (Again): Why Manufacturing Is Coming Home BY ERIC MARKOWITZ www.inc.com

Sleep Apnea Diagnostic Kits(Kept from Offshoring)

● Contracted ZenTech in Baltimore, MD● Reasons:

● Quality control● Lead time/time to market

Source: Gus G. Sentementes, The Baltimore Sun. “Made (once again) in America.” February 27, 2011. http://articles.baltimoresun.com/2011-02-27/business/bs-bz-zentech-maryland-manufacturer-20110227_1_michael-galiazzo-maryland-manufacturers-american-contract-manufacturers.

Candles

Production moved from China toMexico to Vietnam to Glen Burnie, MD

$5 million capital investment in MarylandReasons:

Rising labor costsShipping and freight costTime to market InventoryTechnologyCustomer demand for Made in USA

Sources: Chris Morris, CNBC. “Re-Shoring: Manufacturers Make a U-Turn.” May 23, 2012. http://www.cnbc.com/id/47535355.

Pharmaceutical Development and Investment (Transplant)

● Brazilian pharmaceutical investment company opened U.S. headquarters in Montgomery County, Maryland

● $200 million planned investment in MD and US● Reasons:

● Skilled and educated workforce● Proximity to federal labs● “access to one of the U.S.’s top life sciences communities”● Infrastructure, synergies● Late-stage clinical development of pharmaceuticals with

potential for near-term commercialization● R&D investment to help complete clinical trials and win

FDA approvalSource: Source: PR Newswire, “Governor O’Malley Announces $200 Million Investment in Maryland by Top Brazilian Pharmaceutical Company.” December 3, 2013. http://www.prnewswire.com/news-releases/governor-omalley-announces-200-million-investment-in-maryland-by-top-brazilian-pharmaceutical-company-234282821.html

Economic Development Programcurrently working with PA, MS, Central NY

Action Source/ResponsibilityIdentify local imports by U.S. or foreign companies

Datamyne

Suggest to companies they source locally

EDO/MEP/ etc.

Train companies on TCO to overcome  issue of higher local price 

EDO/MEP trained by Reshoring Initiative 

Needed further cost reductions

MEP/ Comm. College/ Technology Suppliers/EDO

Local Skilled Workforce Recruitment

Issue Solution“Trades” and “vocations” image

Call them “Professions”

Manufacturing career image due to offshoring

Industry collect and media report the local reshoring case of the month.  Use our Case Studies feature.

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But how do apprenticeshipsand credentials pay?

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Selling using TCO

Focus on profit impact, risk management, strategic benefits such as Shipping expenses, supply chain disruptions, IP risks

Maximize the advantages of proximity Time to market, better response to customers changing

needs, eliminate larger production runs and inventory

Work with natural allies: Lean, Green, compliance, quality, line management

TCO Analysis brings the total cost in line with or closer to the “Chinese” price.

Raising Reshoring Awareness in MD

Submit reshoring content such as new reshored cases, blogs, commentary and press releases to: Reshoring Initiative National media outlets Industry media outlets Local media

Utilize social media and content marketing to promote published content, increase website traffic and raise awareness to your program.

Invite the press, political officials, state and manufacturing associations and chambers of commerce to events.

What else can you do?

Use the tools for sourcing and selling. Free at www.reshorenow.org

Have us train supply chain management and sales force

Use our archived webinars to inform staff and customers

Post a link to our site www.ReshoreNow.orgCall on us to speak at: open houses, webinars,

customer industry conferencesSubmit customer cases of reshoring for

publication and posting using our template.Sponsor

Investment

By understanding: the advantage of producing near the

consumer, and the small TCO gap instead of the large price

gap U.S. companies can:

justify domestic investment, process improvement, automation, training, etc.

And they do not have to sacrifice quality, delivery, time-to-market, or employees to be competitive and profitable.

Walmart’s U.S. Manufacturing program

Walmart’s increase in U.S. manufactured purchases: $250 Billion over 10 years $50 Billion in the 10th year In the 10th year:

Approx. 300,000 manufacturing jobs*Approx. 1 million total jobs**

Walmart Actions: “Increase what we already buy of U.S. manufactured

goods Source “new to Walmart” U.S. manufactured goods Reshore the manufacturing of goods we currently buy

by facilitating and accelerating efforts of our suppliers”*Reshoring Initiative **Boston Consulting Group

Reshoring Is Happening

21% of large companies are actively engaged in reshoring, 2X the rate in 2012 (BCG survey. Press release 9/24/13)

Americans respond well to Made in America labels

Jobs and quality are top-ranked reasons to buy American, with over 80% of consumer support. (Consumer Preference Study 3/2014)

Example:Precision Tools and Components

(Transplant)

● Taiwan and China to Harrisburg, PA● $30 million capital investment● Will create 500 skilled labor jobs● Reasons:

● Synergies● Skilled workforce availability● Customer preference for domestically made products

● Committing additional $10 million to Carnegie Mellon University for robotics R&D

Sources: Agence France Presse, Business Insider Australia. “iPhone Maker Foxconn Invests $US40 Million in US Manufacturing.” November 22, 2013. http://www.businessinsider.com.au/foxconn-invests-40-million-2013-11Brian Wingfield and Romy Varghese, Bloomberg Technology. “Apple Supplier Foxconn to Invest Millions in Pennsylvania.” November 22, 2013. http://www.bloomberg.com/news/2013-11-21/iphone-maker-foxconn-said-to-plan-investment-in-pennsylvania.html

120,000+ Manufacturing Jobs since Jan 2010!

Reshoring yielded: About 120,000+ manufacturing jobs*~ 20% of manufacturing job growth since the

Jan. 2010 low~ 240,000 total, including multiplier effect

* Source of estimate: Reshoring Initiative tabulation of jobs listed in 1576 Reshoring Library articles, 90% published since Jan 2010

Reshoring TrendThe bleeding has stopped!

Manufacturing Jobs / Per Year2003 2013 % Change Feasible 2016

New offshoring*

~150,000* 30-50,000* - 70%  20,000

New reshoring    2,000* 30-40,000** + 1,500 %  70,000

Net reshoring -148,000 ~0 -100% +50,000

*Estimated / ** Calculated

Industries of published cases

Industry Number

Transportation equipment 50Electronics/Appliances/Components 47Energy 33Other 33Computer/Electronics 31Apparel 30Hobbies 24Fabricated Metal 23Machinery 21

Wood Products 20

Plastic/Rubber 18

Medical 16

Chemicals 15

Primary metal 8

Castings, Non-metallic products 3 each,Source: Reshoring Library, March 2014

Negative Issues Offshore

Source: Reshoring Initiative Library, March 2014.

Negative Issues # Cases Lead time 111Quality/rework/warranty 109Rising wages and Currency Variation 88Freight cost 82Total cost 49Inventory 37IP risk/ Supply chain interruption risk 29 eachDelivery 28Communications 18Green considerations/Loss of control 15 eachTravel cost/time 14Price 5Difficulty of innovation/product differentiation/Regulatory compliance

4 each

Burden on Staff, Emergency air freight, Political instability 2 eachEmployee turnover, Strained offshore relationships, Natural disaster risk

1 each

Positive Reasons to Reshore

Source: Reshoring Initiative Library, March 2014.

Positive Reasons to Reshore # Cases Skilled workforce 87Image/brand 80Government incentives 79Automation/Technology/3D printing

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U.S. energy prices 49Re-design 41Higher productivity 36R&D 35Lean 27Eco-system synergies 22Infrastructure 20Customer responsiveness 14Lower real-estate/construction 8Labor concessions 7

Countries From Which Reshored

Source: Reshoring Initiative Library, March 2014.

CountryReshored Cases Global Regions

Reshored Cases

China 135 Asia 165Mexico 20 North America 26India 11 Western Europe 6Canada 6 Eastern Europe 2Japan 5 South America 1Taiwan 5 Africa 1Korea 3Hungary 2Vietnam 2Germany, France, Brazil, Spain, Netherlands, Italy, Egypt, Indonesia, UK, Singapore, Malaysia, Sri Lanka, Australia 1 each

Jobs Reshored by State

Sources: Reshoring Initiative Library, August 31, 2014.

Cases 2007 through 8/31/14.

State Jobs Companies

Avg. Jobs/

Facility State Jobs CompaniesJobs/

Facility State Jobs Companies

Avg. Jobs/

FacilitySC 7780 7 1111 AZ 700 2 350 RI 200 2 100MI 6721 13 517 FL 611 12 51 IA 193 2 97CA 6014 28 215 MA 598 10 60 WA 150 3 50KY 4612 5 922 MS 540 5 108 MO 150 6 25TX 3712 12 309 UT 464 6 77 MD 90 6 15OH 3611 18 201 AL 397 4 99 MN 64 9 7GA 3005 7 429 WI 342 11 31 MT 25 1 25TN 2490 11 226 NJ 335 3 112 DE 0 2 0NY 1089 17 64 IN 320 5 64 VA 0 1 0NC 1020 14 73 PA 279 11 25 CT 0 2 0ID 1000 2 500 AR 210 4 53 ME 0 1 0KS 1000 2 500 IL 205 9 23 VT 0 2 0CO 738 6 123 NH 200 1 200 ND 0 1 0

Reshoring’s Potential Impact

Balance the $500 billion trade deficit:3 million manufacturing jobsCut U.S. budget deficit by about 50%Reduce unemployment about 4 percentage points25% increase in manufacturing If spread over 20 years: 25% extra annual capital

equipment investment

Gaining support in Washington, DC

Commerce Dept: 2012 budget specifies TCO4 Links from the Commerce Dept to the

Reshoring Initiative: http://nist.gov/mep/reshoring.cfm http://business.usa.gov/program/reshoring-initiative http://www.manufacturing.gov/other_orgs.html http://acetool.commerce.gov/

Testified at Congressional hearing on 3/28/12Working actively with SelectUSA

Calls from:United States-China Economic and Security

Review CommissionWhite House National Economic Council

April 2014 – Congressional Visitors Center

1/11/12 White House Insourcing Forum

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Some Reshorers

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Useful Tools

ACEToolTCO EstimatorUsing the TCO Estimator: A How-To GuideLibrarySubmit a Case StudyEconomic Development Program

Help slow the offshoring flood now!

Contact:Harry MoserFounder and President847-726-2975harry.moser@reshorenow.org www.reshorenow.org

Sandy MontalbanoMedia Advisorsandysgm@optonline.net