Who's Bringing Manufacturing Back to the U.S., and Why?
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Earlier this year, Design-2-Part Magazine surveyed companies on both sides of the outsourced manufacturing relationship—OEMs (product manufacturers) on one side, and contract manufacturers and job shops on the other. Product manufacturers and OEMs were asked questions such as "Does your company source any parts manufacturing services overseas?"; "What are the factors that you weigh when deciding whether to source production overseas, versus in the States?"; "Has your company reshored any parts manufacturing services that had previously been sourced overseas, and, if so, why did you bring these manufacturing operations back to the U.S.?"
Contract manufacturers and job shops were asked similar questions aimed at capturing the reshoring landscape from their perspective as a supplier: "What factors do your prospective customers weigh when deciding whether to source production overseas, versus in the States?"; "Have any of your customers reshored any parts manufacturing services that had previously been sourced overseas, and if so, what reasons did they give for bringing their manufacturing back to the U.S.?"; and "How are you able to meet your customers' needs better than their overseas suppliers had?"
After reviewing the responses of companies on both sides of the customer-supplier relationship, Design-2-Part Magazine's Rebecca Carnes conducted follow-up phone interviews with selected survey respondents. Following are edited transcripts of some of her interviews.
OEMs and Product Manufacturers Talk About Reshoring
Company: Stork Food & Dairy Systems, Inc. (SF&DS), Gainesville, Ga.
Description: Development and supply of integrated processing and filling lines for the dairy, juice, food processing, and pharmaceutical industries.
Source: Case Lichtveld, sourcing and sales engineer
Q: Why did you choose to source some of your hydro sterilizer towers overseas?
A: We started building them overseas and it was an export market from overseas to the U.S. Now it's part of our install base here in the U.S., so we decided 'Why not have them fabricated here?' Plus, the fluctuation of the euro versus the dollar makes it very difficult to set your profit margin. One moment, you make a profit; the next moment, you lose your shirt. We have reshored 60 percent of the Hydro sterilizer towers and parts to the U.S.
Q: What are the other factors involved in bringing it back?
A: Because we sell the product here to the American market, some of the American clients ask if we can fabricate the parts in the U.S. So it's a request from our clients. Plus, we can speed up the delivery because we don't have the overseas freight.
Q: You said it is difficult to find a U.S. supplier to make these parts. Why?
A: Because the kind of product we have is huge and a lot of the shops can't handle the size. And they've never seen a product like this. Also in this downturn of the economy, a lot of shops are afraid to tackle something they've never seen before. I have to do a selling job to even have it fabricated here. The parts are 80 feet high. It's a major sheet metal fabrication and it's part of a machine, so the tolerances are much tighter. Plus the pressure vessels are rectangular rather than round. They've (shops) never seen anything like this before.
Q: But you were able to find a U.S. supplier that could handle some of it?
A: Yes, in Florida. But they can't handle all of our needs because of the volume, and they're not geared for the weight of some of the parts. I started searching on the Internet, but it's hard to find anybody that wants to do it. It's a two edged sword because they're being fabricated in Europe, in Holland, for a certain price which is reasonable. But in the U.S., because they've never seen this type of part, they often build so much safety factors in that they cannot compete, price wise. The labor costs in Europe are a little higher than here, and then we still have the freight cost. We are willing to pay sometimes more to have it fabricated in the U.S. because we shorten our delivery times and we cut down on freight costs.
Q: What would an ideal shop look like that could handle your needs?
A: I would say they should be able to handle 30 to 40 feet heights with cranes that can handle 40 tons each. Excellent welding. They have to be pressure certified and they have to have excellent plasma cutters or huge laser cutters. They have to be able to work from 3D drawings.
Company: Parker Hannifin Corp., Cleveland, Ohio
Description: Global leader in motion & control technologies
Source: Mark Hayes, senior manufacturing engineer
Q: Parker outsources its machined cast metal parts for hydraulic piston pumps. What did you base your decision on to offshore these parts to China?
A: It was all cost; that's all I care about.
Q: Are there other factors you take into consideration, like shipping costs, time to market, and rising fuel costs?
A: Those things are difficult for me to judge. We don't offshore very often (only about 10 percent) because the cost difference usually isn't enough to offset the pain. But in this particular case, it was. I don't have any more trouble getting things from China than I would, say, from Europe. We outsource a lot there and it's about the same length of time to get it here. And customs and everything are about the same amount of problems. Going forward, China's population is getting older, and I think about those things as part of my job, but it's primarily cost.
Q: Is quality at all an issue?
A: I tend to subcontract things that are high volume and probably not the most difficult things to make, and I will also go over (to China) and get them running. I will set them up the same way I was running them here. They're very good at mimicking things. But as a percentage, we offshore only about 10 percent. I try to do it here (U.S.) if I can. It truly is easier. Language is important because if there's a change, it's easier to get a point across or, if there's a problem, it's easier to correct.
Q: What would a U.S. contract manufacturer have to do to get you to change your mind and bring those parts back to the U.S.?
A: Beat the price. One of them (job shop) I'm looking at here because they've recently given a little push back on price, so I will look again here. I do look all the time to bring it back. The other thing, too, is a lot of the cost savings is in the raw material, the casting. And so machining to machining, there's not that much difference. But the savings is in the raw material, and they (China) don't like to send the raw material here; they want the work to be done in their country. So I can't just buy the casting at a good price, so that's why. If I could get castings as cheap here, I could probably get the machining done as cheaply.
Company: Benvenue Medical, Santa Clara, Calif.
Description: Focused on advancing spine repair through the design, manufacture, and marketing of innovative medical devices for use in minimally-invasive spinal therapies.
Source: Tim McGrath, senior processing engineer
Q: Your company does not offshore any parts or services. Have you ever looked into overseas suppliers, and what has kept you home?
A: Nobody wants to send any work offshore if they don't have to. Personally it's a negative thing.
Q: Do you ever compare costs of overseas versus U.S. manufacturing?
A: I think it varies company to company. It seems to me that it's a difficult thing to deal with. The question is really the quality. My personal experience is I was with a company that had offshored parts. You have to work with someone who doesn't have your best interests in mind, so that means that you have to have a way of controlling it. So you have to micromanage everything that's happening on the other end or find a way to inspire a quality mentality. They're out to make money. Their best interest is not to think about your product directly.
Q: Do you think that the quality and intricacy of parts in the medical field is something that keeps production in the U.S. as well?
A: Yes, I think in the medical field, the quality with medical devices is a motivator. It's not just about keeping it here, but even in the U.S., it's important who you choose to be your supplier because not all suppliers have the same abilities and attention to quality. And it's easier to manage when you don't have to speak a different language.
Q: What other factors lead you to keep manufacturing of parts in the U.S.?
A: Certainly the delivery times because customs can be an issue with an offshore company if they don't have a good way of handling it.
Q: So you're choosing to keep manufacturing of parts home because of quality and control?
A: I think for our company, our first choice would be to do business with people who are right next door to us—that are even in our own city to meet face to face and have a relationship with them. The further away they are, it's harder to know if they're doing a good job or to even know them.
Company: Mitsubishi Motors N.A., Inc., Normal, Ill.
Description: Auto manufacturer
Source: David Erickson, tooling analyst
Q: Why did you initially decide to offshore your automotive tooling and parts?
A: A lot was cost driven. Some of our tooling was already being built in another country, but also being used by our parent company. And through various ways, we decided it would be more economical to bring it back to the states.
Q: What were the factors that led you to reshore these parts?
A: Transportation costs and the value of the dollar going down. Timing was also a factor. By the time we brought stuff in from Japan and China and Korea, it takes a while. We're usually Just In Time. Quality was an issue as well. It all factored in. Our upper management and cost engineers did a cost analysis taking everything into consideration.
Q: Was part of the reason to be a "good citizen" by making it in America?
A: We lobbied pretty hard to get it into the states and, as far as production goes, we did keep a lot of it in, but did outsource a lot more of the tooling than I'd like to have. And now that tooling has come back.
Q: Was it hard to find U.S. suppliers that could handle your needs?
A: No, we had some pretty good connections. There's some very big shops that do a lot of stuff for us. And the quality of the tools, I really can't complain.
Q: As a big company, do you see yourself as setting a trend to reshore?
A: I would hope so, but I'm not sure we are. A lot of people really don't know we're doing it.
Contract Manufacturers and Job Shops Weigh in on Reshoring
Company: Marik Spring, Inc., Tallmadge, Ohio
Description: Marik Spring is a custom spring manufacturer specializing in cold wound springs in wire sizes from 0.005 inch to 0.625 inch. Its plant facilities are structured to produce short-run custom parts, medium-to-high volume OEM parts, as well as parts produced through its prototyping design capability.
Source: Dan Young, manager of marketing
Q: What do your customers factor in when deciding to source production with your company or to go overseas?
A: Price is their first response when they start to look at competitive quotes. Some customers will say that's all that matters. I've quoted some springs at $2.20 and the guy says "We can get it from China for 21 cents apiece," and we're not even in the ballpark. My belief is that is coming from cheaper material and government assistance that helps them. It's an unfair competitive environment. So when that discussion opens itself up, the very first thing I move to is reliability, consistency, and the source supply. If you get something and you're not happy with it, your choice is to come a couple of hundred miles to a spring manufacturer or deal with somebody 3,000 miles around the world.
Q: Do you have any reshoring success stories?
A: We have a "budding" relationship with another company that uses compression springs in its product line. Plastic cups secure the position of the springs in their product. They will use our springs, but planned to procure injection-molded cups overseas. Normally, it would not have raised a red flag, but our success in this market is closely tied to this company's ability to expand market share and I had a new connection. While attending my first Design-2-Part Show in Akron in 2012, I met an exceptional plastic injection molder who ultimately became a customer to Marik Spring. Our company philosophies paralleled each other's in many ways, and in passing, we discussed reshoring, "Buy American," and supporting American business.
By getting these two companies together, we will now have American springs produced with American wire sources mated to cups produced in the U.S. It's a win all the way around. The success story out of this is, as of February 2013, they have the cups being supplied by the U.S. manufacturer and are using our springs. It benefits me because if this guy has got all of these cups and parts, he can sell more of his product and he can come to me for the springs.
Q: How can you better serve a customer than an overseas competitor?
A: Reliability, consistency, and the ability to do problem resolution, meaning that I'm here, I'm close. If I need to travel to you in a day, I can do it. If want to see how something is made, I can show you and I can invite you to my facility. I always believe there's a cost associated with better communication and better problem solving that pays off to a customer down the road. In the spring manufacturing world, many shops can coil wire. Quality is a factor often determined by the quality and consistency of the raw material. But also, today's marketplace demands the ability to communicate quickly, accurately, and often in person. That's the USA advantage.
Company: Karlee Co., Inc., Garland, Texas
Description: Contract manufacturer of machine shop parts, sheet metal parts, assemblies, electro-mechanical assemblies, and finishes.
Source: Chris Cornwell, new business development
Q: What do customers factor in when deciding to source domestically or go overseas?
A: It has to do a lot with the quality and pricing, but they're looking at natural disasters too. That tsunami caused a lot of issues last time.
Q: Does it go beyond pricing now? Are customers looking at other factors?
A: Definitely. We can't compete on price and don't even try to. But they are looking beyond that. They see the problems they had this last time and they see prices rising over there, so it's not as competitive as much as it used to be. And quality follows that, too, so if you have any issues shipping containers over here and have quality issues, well, you don't have seven weeks to wait for product to get to your customer. They understand that now.
Q: Some customers have reshored sheet metal and electro-mechanical assemblies to you after being overseas. What do you think brought them back?
A: They're global companies and they saw the impact. They can't afford it. They sell commercially and to DoD. Can't tell the end customer, "Sorry, you have to wait."
Q: Why is it so difficult to compete with overseas suppliers?
A: The governments (abroad) pay for their shipping, so how do you compete with that? We cannot compete on the labor cost or free shipping when their government offsets that. So we build their product in a lead time that they need, and have great quality. This way they do not have to keep stock waiting for the next ship to arrive, or expediting parts due to a bad shipment. A bad shipment may not be an issue of the supplier; it could have been an issue due to the shipment being damaged in transport. In this example, either way, the customer is the one that is impacted.
Q: What do you offer that an overseas supplier can't?
A: Quality, lead times, and set pricing. We try to set pricing for a year to five years, depending on the product line.
Q: Do you see yourself as having much competition from overseas suppliers?
A: Yes, they took a lot of business away between 2007 through 2010.
Q: Do you think there's a trend with work coming back to the U.S.?
A: Yes. The big companies have analyzed and done all their math, finally. It's not worth it to put all of their eggs in one basket overseas, like they were doing.
Company: International Ceramic Engineering, Worcester, Mass.
Description: International Ceramic Engineering manufactures and fabricates advanced ceramic and machinable plastics for many different industries. These materials are used for their thermal, electrical, and wear resistant properties. Industries served include semiconductor, LED manufacturing, oil and gas, automotive, medical, RF, aerospace, defense, and many others.
Source: Meg Mulhern, senior management / engineering sales
Q: What do you see customers factoring in when deciding to source domestically or overseas?
A: There's two things: the ability to actually converse with us and discuss design and manufacture during their work day. That's a big thing, the time zone difference. Especially when we're doing conference calls with an engineering group. It's a lot easier when you can do business during your business day. And the other thing is delivery. I know that delivery is a big issue with most of our customers because what we do is custom design components. So what we do, they usually need yesterday. I'm just getting the drawings, and we have to create the part for them. The quicker the delivery, the better, and I can send things overnight. And if they're local, we will sometimes drive prototype parts to our customers the same day. Price is what it is. In the industry we're in, materials are very expensive, regardless of what country you're buying them in, so price doesn't come into play a lot, but the delivery and being able to do business during their work day does. And the language barrier is important as well.
Q: Do you think customers are becoming more aware of these differences and making more choices to domestically source?
A: Yes. Eight or nine years ago, we saw some of our customers looking overseas for components, but it didn't really take off. We don't have an issue here as far as overseas customers quoting on what we're quoting on at the same time. But we do have some competition from overseas. Ceramic material is a very high-tech material used in a wide variety of industries—mostly semiconductor, LED manufacturing, oil and gas, defense. These industries exist all over the world. So I'm sure I'm losing some business to other countries overseas.
Q: Do you see a trend in work coming back to the U.S.?
A: Yes. Like I said, about eight or nine years ago, a lot of my customers and a lot of industries looked overseas. It was pricing when everything started to unwind the first time. But what they found out was cheaper wasn't always better. And in the industry I'm in, the materials we work with, there are very specific reasons for [using] them. And if a material isn't a quality material and if you're not firing it and getting it to be a fully dense material, it has major backlash issues. Some of my customers put these components in million dollar machines. You don't want to break a million dollar machine because you just saved fifty cents. So we definitely have seen it come back, and it continues to come back.
Company: Distron Corp., Attleboro Falls, Mass.
Description: Provider of electro-mechanical assembly
Source: Don Petry, VP of sales & marketing
Q: What do you see customers factoring in when deciding to source with you or go overseas?
A: Generally, the main factor for them is price. It's first price, and then what we've seen is people talking about the fact that transportation costs have increased and travel costs have increased. So it has lessened the savings. And then you couple that with the inflexibility of Chinese suppliers.
Q: How do you get some of your customers to look beyond price?
A: We have some customers who have a mixed model. They use us for their prototypes and their pilot runs, and then they go offshore for their production. They tell us they have an offshore partner and when this hits volume, it's going to go offshore. OEMs have different supply chain strategies. I can reference a particular customer that gave us direct information that they evaluated our pricing compared with a Chinese supplier and we were only 10 to 15 percent higher. So in that case, he said it's not worth the hassle and the distance and the travel, and he kept the product here. The thing to note about that particular product is that it's all surface mount technology. There's virtually no touch labor, so, as you can imagine, anytime people start handling a product, if my rate is $40 an hour and the Chinese rate is $4 an hour, I can't be competitive. But if it's all machine time, we can keep things a lot closer (in price).
Q: Do you see yourself as having much competition from overseas?
A: We're not trying to compete with offshore suppliers. We're not chasing that kind of business. We're not doing the iPhones, and the consumer goods, and telecom products. We tend to do things that are low-to-medium volume, which I'm sure a lot of the job shop type companies are doing.
Q: You mentioned one customer reshored circuit board assembly from China and Mexico to you?
A: We've had a couple of different customers that had cases where they brought products back. Where they weren't seeing the savings they thought they would, and just the headaches of dealing with a Chinese supplier. It's a lot more difficult—the communication, the shipping, those kinds of things. They can't respond the way a U.S. manufacturer can, and that's why we tend to stay in the direction of our customers needing smaller quantities, but faster and with more variety.
OEM Company: PNY Technologies, Parsippany, N.J.
Description: Manufacturer and supplier of Flash memory cards, USB flash drives, HDMI® cables, mobile accessories, audio products, and more.
Source: George Kopacz, component/compliance engineer
Q: Why did you initially choose to offshore your pre-manufactured memory products, electronic components, and mechanical piece parts for flash drives?
A: It was strictly cost driven. But a cost analysis proved manufacturing cost savings. And it was mostly quality control. We have assembly operations here, and when our engineers can walk from the design area and right into the factory to see something being built, it was just a lot more convenient.
Q: What did the analysis entail and why did you decide to reshore?
A: Just the manufacturing costs were lower. I mean it was the full stream analysis of the shipping, the overseas engineering, the engineering here in the States. So it was a full scale analysis of our product. And having the engineering close to the production was a very important factor. Better quality control, shorter shipping times, and no delay in communications were factors as well. Because overseas, they're working when we're not in the office, and they're in the office when we're not working.
Q: Will you be bringing more parts back from overseas?
A: At the current moment, it's hard to say. We're always looking to reduce the cost of our products and our manufacturing operations, so it's possible, but we don't know that for sure right now.
Contract Manufacturing Company: Zeman Manufacturing, Lisle, Ill.
Description: Small diameter metal tube fabrication
Website: www.zemanmfg.comDaniel Zeman, General Manager
Q: What factors do your prospective customers weigh when deciding whether to source production overseas, versus in the States?
A: Price, lead time, quality, customer service, design support, and cost of freight.
Q: Have any of your customers reshored parts to you, and, if so, what reasons did they give for returning?
A: Cut and fabricated metal tubing was brought back from China. Reasons were quality issues, lead time and late delivery, volume decrease, increase in price from foreign vendor, and increased shipping costs.
Q: How are you able to meet your customers' needs better than their overseas suppliers had?
A: Dealing with domestic vendors has several obvious advantages, such as shorter lead times, better quality, less freight costs, et cetera, but there are other less obvious advantages. Dealing domestically, you don't have to deal with a lot of compliance hassles associated with offshoring. There is no language barrier or anomalous shipping procedures. It is crucial to have strong partnerships with your vendors. When dealing with a batch of bad parts, or a design change, you have a great advantage if you have a vendor willing and able to come out to your shop and address the problem with you.
Q: Do you have an example of how a customer benefitted by outsourcing their manufacturing services to your company instead of going offshore?
A: We had a customer who always came to us with rush orders every five months or so. What we later learned was that they were offshoring this job. They would receive a bad batch of parts, and then need us to cover their short term demand while they waited another 14 weeks for more parts from China that may or may not be good. They shared this info with us, told us what they were paying abroad, and what their EAU was. We weren't able to beat China's price (we were still high by about 25%-35%), but we got close enough that they moved all of the work to us. They were the better for it. They were able to fill their orders in a timely fashion, allowing them to build a loyal customer base. Their inspection department had a lot less to do because we never had a single defect, and their production department wasn't left sitting on their hands waiting for material to arrive. Finally, they had peace of mind that their vendor could be counted on. It is hard to quantify that value.
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