Rising Costs Overseas Accelerating the Need to Reshore
One company official at CMP Group Ltd. (www.cmpglobal.com) is starting to see a trend with work coming back from offshore locations for a variety of reasons, particularly the rising costs of manufacturing overseas. The sales manager says that other reasons—including customs duties, long lead times, and expensive shipping costs—add to the overall cost of the parts.
"We're starting to see more of a trend of work coming back to North America," comments Bill Jaklin Jr., sales manager for the casting and machining division at Canada Metal (Pacific). "The biggest reason lately, from feedback from our customers, is the rising costs of doing business overseas," he said, adding that "people are willing to spend a little bit more to have work done in North America. Also, there's a much different lead time when you have to ship goods by ocean vessels. You have customs duties and other management and logistics issues when you get parts in from overseas."
Because of rising production and logistics costs for overseas manufacturing, production is beginning to look more favorable and cost effective for North American contract manufacturers. "The OEMs kind of have a percentage where they say it has to be a minimum savings before it goes or stays overseas," says Jaklin. "But we've started to see that gap narrow, partly because of rising costs overseas and also because of the initiatives that we've taken here, like robotics, so we can make things more cost effective and eliminate some of the waste."
Jaklin says that there's value in having a short supply chain, short lead times, and the ability to supply things just-in-time with a Kanban system. These systems negate having to stock up on a large supply of parts or components from the overseas suppliers. "If you're out of stock, you have to air freight parts or wait four or five weeks for a shipment to arrive," Jaklin remarks. "So we see a trend to bring more work back to North America. We've seen work come back to our plant."
Canada Metal (Pacific) operates with three core competencies at its plant in Delta, British Columbia, near Vancouver. It specializes in a blend of pressure die casting, machining, and assembly for the marine, transportation, telecommunications, solar, and agriculture industries. "It seemed like for a number of years, everything was going overseas, and it was looking pretty bleak for about a year and a half," Jaklin remembers. "Another thing we've seen is when people have to stock parts and then go through a design change—then they've got a lot of dead inventory that they've had to pay for. But we're starting to see things coming back and staying. So it's not just the bottom price; now, it's the overall value of the parts."
Design2Part Magazine Associate Editor Rebecca Carnes spoke with Travis Riesselman, marketing coordinator at Tempco Manufacturing Company, and Sam Cropsey, sales manager at Fab Masters Company, to get their perspectives on reshoring. Here's what they had to say.
Company: Tempco Manufacturing Co. Inc., St. Paul, Minn.
Description: Precision short-to-medium run metal stampings.
Source: Travis Riesselman, marketing coordinator
Q: Do you have any customers reshoring work back to you?
A: We're seeing it all the time. Now that the economy is coming around a little, a lot of companies want to do an all-USA made product—it's a good selling point. There's one we're working on right now—a measuring wheel for road construction—and the company wants to brand it as an all-USA made product. Right now there are some components being made overseas, and they're trying to bring it all back to us and see if they can sell it as an all-USA made product.
Q: For what industries are you seeing it come back for the most?
A: We're seeing more of it in the firearms industry and the construction industry. We're just seeing it come back across the board. We do some work with Mitsubishi in their Texas forklift division and we used to do more work for them until their parent company sent it to Japan. But now that work is coming back to us. It's more of a corporate-driven practice of theirs. Now they're saying "Let's just get the work from wherever it comes from in the U.S.," and American suppliers are getting more competitive now.
Q: What other reasons are making some companies bring work back?
A: We're more of a low-to-medium volume [metal stamping manufacturer], and we work closely with a company's engineers. We've been doing what we do since 1948, and we provide a lot of knowledge in the industry; we give design suggestions to engineers. There are cost cutting suggestions and [we're able] to work with them more closely. I'm not sure that these companies are hearing those types of suggestions from their manufacturers overseas—like telling a customer if you relocate that hole so that it's not so close to the edge, you'll have a better performing part. They're just not getting that type of interaction from some brokerage in China. Another thing we like to do that they won't get from China is if a customer owns some tooling, we can run it in our shop. We had a customer give us a progressive tool because he needed parts in two weeks. He shipped it to us and we tweaked it a bit and put it in our press. We started running parts for him and had his parts in a couple of weeks using his own existing tooling. He's not going to get that overseas, and it's just another benefit of being local.
Company: Fab Masters Company, Inc., Marcellus, Mich.
Description: Manufacturer of custom aluminum CNC-machined and fabricated parts
Source: Sam Cropsey, sales manager
Q: Were you affected by outsourcing trends?
A: Yes, it greatly affected us because we lost a tremendous amount of volume in 2008 going offshore. But a lot of it is coming back to us now, mostly because of quality and service issues.
Q: Can you give us an example of a part that was reshored to you?
A: I had one engineer that enjoyed working with us very much because he knew that anytime he had a question, he could call and we were only an hour away. This engineer was particularly frustrated because he had bad parts on his floor that had come in from Asia. So the engineer from Chicago stuck around until 9 o'clock at night when the person in Asia was supposed to be there for the conference call. The person in Asia knew they had a problem and didn't want to show up for work that day because he knew they had an error. And so the engineer in Chicago said, 'That's it. I'm done with this. I'm not gonna let us continue to bring in bad parts (dental X-ray columns) from offshore and then stick around till 9 o'clock at night to talk to them about it and they won't even be there to pick up the phone.' So they reshored the work back to us.
Q: How do you stay competitive with offshore companies?
A: It's difficult to deal with offshore labor rates. You can't, really, with our standard of living and cost structure in the U.S. The best you can do is be as competitive as possible, and we've had people come back to us and say 'Okay, I know you can't match this on price, but can you come within 30% of this number? If you can, we can let you have this work.' There are a lot of people who have taken work overseas, but none of them are rich. It's not like they've made all kinds of money by taking this work overseas. It just hasn't happened because there are more costs in transportation and service, so all that profit that they had hoped to gain really isn't there. Of the work we've lost, we've probably seen 20% of that come back.
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