Harry Moser Wants You to Join the Reshoring Movement!
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The Reshoring Initiative Founder Harry Moser, right, speaks during a panel discussion with small and large business experts at the White House in Washington, Wednesday, Jan. 11, 2012, on insourcing and investing in America. Also participating in the panel discussion is Novo 1 Chief Executive Officer Mary Murcott, second from right; Master Lock President John Heppner, second from left; and Small Business Secretary Karen Mills, left.
(AP Photo/Susan Walsh)
A 45-year veteran of the manufacturing industry is working tirelessly to bring manufacturing back to the United States
Harry Moser is focused on the moment at hand. Clocking 70-hour work weeks, the founder of the non-profit Reshoring Initiative (www.reshorenow.org) crisscrosses the country delivering his vision for restoring American jobs--and a methodology that can help make it happen. An MIT graduate and the grandson of a foreman at the Singer Sewing Machine factory in Elizabeth, N.J., Moser has put his retirement on hold in hopes of bringing home some $600 billion worth of manufacturing work that would create about 3 million manufacturing jobs in the U.S., balancing the trade deficit and indirectly creating up to 5 million other jobs through the multiplier effect.
Moser's vision is rooted in a keen appreciation of the value of U.S. manufacturing, and the role it has played in shaping the lives of generations of Americans. "I grew up in New Jersey, and that Singer Sewing Machine factory was the largest building in the world," he said in a phone interview. "My Dad ran about a third of the factory, and I worked there for six summers in high school and college." Years later, Moser was devastated when he drove by the former Singer site and saw that it was gone. "Every industrial city I go into has lost something like that--their equivalent of that factory. Most of it is lost because the production of that category is now overseas. We've got to do something about that."
Since 2007, when he came up with the concept of a U.S. Reshoring Initiative, Moser has been doing yeoman's work to bring manufacturing back to the United States. The retired president of GF AgieCharmilles, the Lincolnshire, Illinois-based machine tool supplier, focuses on helping U.S. manufacturers recognize the profit potential of utilizing local sourcing and production, and the critical role they can play in strengthening the economy. His efforts are beginning to pay off.
On January 11, Moser participated in a day-long Insourcing Forum hosted by President Obama at the White House, hammering home his message that companies need to realize the hidden costs of offshoring when deciding where to manufacture their products. The event included a roundtable discussion with President Obama, a speech by the President on the insourcing of jobs, and multiple panel discussions focused on bringing jobs back to the United States. It also brought national attention to the Reshoring Initiative's Total Cost of Ownership (TCO) EstimatorTM software, a free, online tool that manufacturers can use to account for all relevant costs of offshored manufacturing.
"It was an incredible honor to be included in this event and I'm personally grateful to the President and his administration for taking the time to focus on this timely and vital topic," said Mr. Moser in a statement the day after the event. "Throughout the day, a common theme emerged in revealing that many American companies focus on specific costs and ignore the total cost of offshoring their operations. Increasing awareness of the total cost of ownership has been one of the Reshoring Initiative's key objectives, and yesterday's event represents a major milestone."
Uncovering Hidden Costs
During the roundtable discussion with the President, Moser had the opportunity to explain some of the largest costs that American companies often overlook in their sourcing decisions. Frequently overlooked costs, including routine air freight, emergency air freight, travel, and end-of-life inventory, he said, usually account for as much as 20% - 30% of a company's total cost of offshoring. Later, in panel discussions on tactics and policies that would strengthen the U.S. jobs market, Moser explained how manufacturers could uncover the hidden costs of offshoring by using the TCO EstimatorTM software.
"Large companies can use the tool to aggregate their costs and risk factor to truly compare apples to apples in their sourcing decisions," said Moser in a statement. "Smaller companies also can integrate the software as a sales tool, harnessing it to more accurately reflect their competitiveness with overseas manufacturers. It is our hope that an even greater number of U.S. manufacturers will now benefit from it."
Total Cost of Ownership EstimatorTM can be used to directly compare the costs of offshore versus domestic manufacturing in in-house and outsourced production scenarios. Companies that are currently outsourcing the production of a mold or plastic part overseas, but are considering bringing production back to the U.S., can use the software to directly compare the costs of overseas versus U.S.-based manufacturing. So can companies that are already manufacturing in the U.S., but considering outsourcing to a supplier in another country. The methodology also applies when a company makes a part or tooling in its own factory, and is weighing whether it should be made in its own factory in another country.
At the Insourcing Forum, Moser took the opportunity to present to the President some key figures from the Reshoring Initiative's TCO data base, based on a cost comparison of 10 cases of manufacturing in China versus in the United States. The Reshoring Initiative found that U.S. costs were, on average, 108 percent higher than China's when only price was compared. When comparing total cost of ownership, however, the cost difference was much smaller, with U.S. costs averaging only 12 percent higher than China's. In 60 percent of the cases, the total costs of ownership for manufacturing in the U.S. were lower than China's, averaging 22 percent lower, Moser said.
"I was on the phone recently with a fellow at a company that makes welding supplies," Moser told Design-2-Part Magazine. "He did the analysis and saw that in his case, the total cost of ownership still had a gap, but it was maybe a third as big as they had perceived it to be. He asked a couple of questions, and I helped him resolve his issues so he could take the output to management. The company might not decide to reshore now, but by using the analysis, he saw that within about three years, even that gap would be gone." Moser also said that he periodically gets e-mails from users, saying that TCO Estimator is helping them to make better decisions. They are typically using the software "not as the only decision factor, but as an important decision factor" in their sourcing decisions," he said.
Mike Shipulski, director of advanced development at Hypertherm, Inc., has had success using another software package, Design for Manufacture and Assembly (DFMA®) from Boothroyd Dewhurst. He told D2P in a phone interview that he believes TCO Estimator is an important tool for manufacturers because they can't design out cost until they know where it is. "The Design for Manufacturing and Assembly software helps understand where the cost is at your factory floor kind of level, in the [materials] you buy, and in your factory," he said. "The Total Cost of Ownership software takes a more broad view--a stepping back view at the supply chain or at the value stream level, and helps with things like understanding the costs of moving something from one country to another, the costs of multi-continent manufacturing, that kind of thing. Whereas the traditional Design for Manufacturing and Assembly software is really only about the material costs and your factory costs, the Total Cost of Ownership gets back into 'what suppliers do you use, where are your suppliers located, what are the costs of doing business with your supply chain?' So it's a stepping back kind of view."
A Matter of Accounting
One of the things that plays into companies' decisions as to whether they should do their manufacturing overseas or domestically is the way that they choose to do their accounting, according to Nick Dewhurst, executive vice president of Boothroyd & Dewhurst, Inc.
"For an awful lot of people that I talk to, things like travel costs and logistics costs for shipping and transportation are 'coming out of another bucket,'" Dewhurst said. "So labor goes from $80 an hour to a dollar an hour, but we have to put the thing on a truck to get it to the port in China, to put it in a shipping container to load it on a ship to spend six weeks on the water, to sit in customs and pay taxes and duties and things here. And oh, by the way, when we open that up and the plating's flaking off, we've got to send six engineers over to China to sit with the company for four weeks to make good product again. Then we're putting it on planes to fly it over because our line's been down, waiting for the parts to arrive. All of that cost never makes its way back to the bottom line cost of the product.
"So nobody's making apples to apples comparisons of the true costs of offshored manufacture. When you start to dig in to that, there's a pretty good case to be made that for a lot of companies, it's costing them more. And I think that's what you're starting to see as a realization, and reshoring is becoming a thing that's starting to happen.
"The other thing that's difficult is that nobody wants to admit they've got egg on their face, right? So you're not going to see a lot of people readily admitting that that was a bad idea, and we never should have done that in the first place."
Dewhurst believes the TCO Estimator software complements DFMA software because it "does a good job of capturing all of those additional costs."
"Our sole focus is on the cost of the product, so we can help you figure out what molding plastic pieces in China versus the U.S. costs. But the logistics costs--the shipping, the cost of the inventory on the water, et cetera--are things that we don't take into consideration. Whereas, Harry's tools certainly seem to be doing a good job of capturing some of those additional costs. So in looking at the total cost of delivering a product to a U.S. market from China, versus a U.S.-centric manufacturing base, I think they complement one another in that way by filling in those additional pieces."
"I think the real issue is that when you go get a quote from somebody, you get a piece part price and you get shipping cost, but you don't look at all the other things that you'll end up paying for one way or another, including the intangibles," said Dave Meeker, a product development consultant with Neoteric Product Development. "So those don't necessarily factor into the decision all the time. I also think a lot of times, when you are looking at a product, a lot of people are not always comparing apples to apples. So you really need to take a serious look to make sure that what you're buying from overseas is, in fact, the equivalent and, with subtle little changes on the finishes--powder coat versus paint, and all these other things--you need to make sure you're doing an apples to apples comparison when it comes to product specifications and product capability. And a lot of times what you find out is, you're not buying exactly the same thing, and when you cost out the exact same thing, in fact, it's a wash."
Reversing the Herd Mentality
In general, Moser said, many U.S. manufacturers began going offshore in the first place because labor rates were lower overseas. "Either to put their own factory in that other country or to source from contract manufacturers there, they perceived and expected that they would buy things at lower prices, or the transfer prices back from that factory would be lower," he said. "And in general, yes, the prices were lower, but their other costs were higher." Profitability took a hit at companies whose "other" costs rose too high. For many, the extent to which those costs escalated--including transportation, shipping, and freight, as well as inventory, travel, and intellectual property risk management--was simply not anticipated. "In many cases, companies tended not to make an informed, objective, rational decision," Moser said. "They jumped on board the wagon because they saw that everybody else was doing it--they had sort of a herd mentality."
Moser acknowledges that offshoring may have made sense to some companies years ago for economic reasons, including the labor-intensive nature of their manufacturing process. But for many, he says, offshoring was the wrong decision then and remains so today. Chinese wages, expressed in dollars, are now dramatically higher than when companies decided to go overseas five, 10, or 15 years ago.
"There are many reasons why, for those who made the wrong decision before, it's even more wrong now," he says. "And for half or two-thirds of those who made the right decision 10 years ago, it's now the wrong decision--or will be within the next couple of years, as Chinese wages continue to increase. The price of oil and the cost of shipping have gone up, and the demands of the U.S. market for quicker response, in terms of quantity and product differentiation, have increased."
Another reason companies went overseas, he said, was to be present in the 'Chinese miracle.' Because China was growing at a healthy rate, and was expected to keep growing, companies saw the country as a good place to have a presence. One way to do that was to go over and start a factory. "We totally support putting a factory in over there [if you're going] to sell over there; it's just common sense," said Moser. "We just say that people that are selling here should analyze the costs and see that it's generally in their interest to have the factory here to support the U.S. market."
For Enser Corporation (www.enser.com), an engineering services company in Cinnaminson, N.J., the only way to make an "apples to apples" comparison of overseas versus domestic projects was to track two projects secretly--one being done in the U.S., and the other, offshore. One of the company's Fortune 500 clients had sent its design projects overseas in early 2000 and, after a few years of dealing with frequent design errors and communication difficulties, many in Enser's engineering group were growing increasingly frustrated. They pushed company executives to investigate, and what they found was "astounding," according to Marco Arnone, president. "Final costs were much more for the overseas project and the delivery time was longer," he said in an e-mail response.
As it turned out, Enser's U.S.-based lead engineer for the project needed to constantly check 3D models and other project details, and the time spent trying to correct these errors was not being tracked in the project. Instead, it was "buried in overhead," according to Arnone. In the meantime, time to market for products--a critical metric in today's global economy--was slipping, leading to lost product share.
"When clients come to us, they are usually in a crunch and we must react quickly and efficiently to meet their aggressive schedules," said Arnone. But once the client re-shored and began to utilize Enser's support, their overall costs dropped by 14 percent, he said, and their time to market decreased by 22 percent.
One of Enser's strengths, and a key to its ability to reduce lead times, is that it ties the design and build function together under one roof. The company's customers have expressed increased interest in recent years for a "total turnkey service," whereby Enser assumes responsibility for the complete project--from engineering and design, to the manufacturing and testing of the product. This expedites solving of unforeseen problems and ultimately enables the project to be completed expeditiously and cost effectively, Arnone said. "Concurrently running the purchase of the component parts and fabrication of the product during the latter part of the design cycle results in a compressed lead time," he noted. And by closely following the fabrication process, Enser's engineering and design staff can address any unforeseen build problems and solve them quickly, he added.
Mike Harlow, vice president of Kodiak Assembly Solutions, says that several years ago, one of Kodiak's customers in the U.S. had decided to outsource their PCB assemblies to China. The CEO of the company was convinced that it was the right thing to do, and that it would result in better profits for the company. "He felt that it was a good time to make the transition, as they were introducing their 'next generation' product line to their customers," said Harlow. "After one year of a very difficult transition to the Chinese contract manufacturer, the shipments of their new PCB assemblies were behind schedule, and they were having an unacceptable amount of assemblies not passing their incoming inspection and test."
Kodiak Assembly Solutions has a dedicated box build / product integration area. These employees are installing printed circuit boards into a metal enclosure. The product is a silicon validation system for a large semiconductor company based in the United States. Some of the systems are shipped internationally.
Photo courtesy of Kodiak Assembly Solutions.
The company sent a team to their Chinese manufacturer for a month. When they returned, they decided to look for an alternative contract manufacturer in the United States, and approached Kodiak Assembly Solutions (www.kodiakassembly.com). "They were on the brink of losing one of their largest customers due to the quality and delivery issues they were having," Harlow says. "They approached our company, and we were delivering PCB assemblies to them within six weeks. We developed an in-house test for their assemblies, and our 'first pass yields' were at 98%. They told us that they are paying about 15% to 20% more for the assemblies, but considering the scrapped assemblies from the Chinese manufacturer, they are actually paying less. They are now our second largest customer for the last six years."
The Fastest Way to Improve the Nation's Economy
At a presentation he gave at the Greater Waterbury Manufacturing & Technology Expo in Waterbury, Conn., last November, Moser called reshoring "the fastest and most efficient way to improve the U.S. economy." Rather than fighting over how to split a pie that isn't growing, the Reshoring Initiative seeks to make the pie bigger by bringing back "permanent" manufacturing jobs without waiting for anyone else, or any other entity, to act. It's important, he says, because the approximately $600 billion national trade deficit--meaning the value of goods exported from the U.S. is $600 billion less than what is imported--is indicative of what he calls "a manufacturing deficit" that has grown dramatically over the years while impeding economic growth.
Moser strongly believes that bringing back manufacturing, and the jobs that it creates, would go a long way toward erasing the nation's trade deficit. Balancing the trade deficit in this way could translate to 3 million new manufacturing jobs in the U.S., a conservative estimate assuming average sales of $200,000 per employee in manufacturing ("it's probably lower," Moser acknowledges.) "If you assume the most conservative number I've ever seen for the multiplier effect--1.42 additional jobs--you pick up another 4 or 5 million other jobs," Moser said.
By using TCO Estimator in combination with software such as the DFMA product simplification and costing package, product manufacturers can identify areas where they can realize substantial cost savings, thus opening up new sourcing options. These options include manufacturing in what had previously been seen as more expensive, higher-quality U.S. facilities that offer time- and cost-saving Lean Manufacturing, Quick Response Manufacturing, and various methods of automation. Total Cost of Ownership can therefore be used as a "constraint remover" because "a 30-to-40 percent cost gap is a barrier," Moser said. "Whereas, when you get it down to a 10 percent cost differential (between offshore and domestic manufacturing), that's an opportunity."
Another benefit of reshoring is that it brings a company's manufacturing operations closer to its engineering and R&D facilities. American companies that source domestically have more flexibility in product development because their suppliers can respond more quickly to design and engineering changes. When U.S. companies don't maintain manufacturing close to their engineering centers, they run the risk of losing their effectiveness as innovators.
"That's consistent with what (Gary) Pisano and (Willy) Shih at Harvard Business School, and Michael Porter at Harvard Business School, would say," Moser confirmed. "There are really two solutions. One is to keep your manufacturing near your U.S. engineering; that's the best solution. But other people, after they've sent their manufacturing offshore, let's say to China, find out that they can't innovate very effectively with their engineering in Chicago. So they close the engineering in Chicago and build up the engineering in China to get the engineering and manufacturing back together. And then in the U.S., they've got nothing except maybe sales and marketing. Eventually, if they're not careful, their people overseas leave the company. And because they've got engineering and manufacturing, they start competing with you, and they take the U.S. market away."
While the cost differentials between U.S. and China-based manufacturing continue to shrink, Mexico has been quietly building up its own contract manufacturing sector, one that has steadily increased its competitive position versus China. As a passionate advocate for reshoring, Moser would obviously prefer that companies dissatisfied with offshoring bring their manufacturing all the way back to the U.S., not just to the Americas. But he realizes that if a company is considering pulling its work out of China, India, or somewhere else far from the U.S., in favor of going to Mexico, they're doing it because they prefer to eliminate most of those logistical costs and not lose all of their labor cost advantages.
"I'd prefer that companies first do Total Cost of Ownership and say, 'looking at the quotes I've got on both sides, and looking at what I think it's going to cost me to do it in my own factory, can I bring it back to the U.S.?' Now you've got the gap between foreign and domestic cost. Where there may have been a 30 percent difference in price, now--using Total Cost of Ownership--you see that it's a 10 percent difference. So if the answer is no, the second step is 'Can we go to a Design-2-Part Show and find a lower-cost domestic source? Can we, either in house or at our suppliers, apply Lean, theory of constraints, Design for Manufacture and Assembly, Quick Response Manufacturing, some method--automation, innovation, something--to eliminate that 10 percent gap? Whereas, with a 30 or 40 percent gap, it was so big that I knew it wasn't even worth trying.
"So you do your best and you brainstorm that. You might say 'No, there's still too much labor costs, we can't automate it enough, it doesn't make sense to bring it back to the U.S.' Maybe the third step is "How about Mississippi, or Tennessee, or Texas? And if you still say no, then I'd say, 'OK, bring back the labor-intensive portions to Mexico and bring back the higher-tech, maybe final assembly into the United States. Make those labor-intensive portions in Mexico, and finalize the process here, or make the tooling here and ship the tooling to Mexico.
"In other words, look at how the U.S. and Mexico, together, is a better solution rather than using them separately. I think that's a double win, because to the extent that some of the work is in the U.S., that's good for the U.S., and to the extent that Mexico gets the remainder--or even all--instead of China, that's okay. Mexican industry buys much more that's input--tools, material, what have you--from the United States than China does. Therefore, to the extent that Mexico thrives, there's a much stronger trickle down from Mexico to the U.S. than there is from China to the U.S. So I'd prefer that companies at least try that logical tree and see how far along that process they have to go before they get to a very good solution for their company."
Seizing the Moment
Poor quality, long waits for orders, and high-quantity requirements are reasons why customers of Kaspar Manufacturing, have returned from overseas, according to Morgan Barnett, general manager of the company's wire division. for Kaspar Manufacturing. Turning to Kaspar after having been overseas is a "definite trend" among its customers, according to Barnett, who said he has seen about a 10 to 15 percent jump in returning business this year. Barnett said he is getting used to hearing the same complaints about overseas suppliers and looks forward to offering his customers so much more.
"They (overseas suppliers) are demanding that the amounts have got to be container loads, and by demanding larger orders, they're tying up inventory (for the customer). We can do any amount; it doesn't make a difference. Whatever a person wants to pay for, we're going to meet quantity issues, and our lead times are definitely better, with generally a three to four week turnaround," Barnett said.
Kaspar Manufacturing (www.kasparmfg.com) fabricates a wide range of stock and custom wire, sheet metal, and tubing products. As a custom producer, Kasper is able to handle "hands-on short runs" which makes the company more competitive against an overseas supplier. The high demands of an overseas supplier make business difficult because "if you don't have 100,000 pieces, they won't even talk to you," Barnett explained.
Barnett described an image he saw in the news recently of a cargo ship from overseas split in half over the ocean due to a storm. "I would say to my customer, 'What if your big order that you had to have was sitting on that ship right now?'" It's a powerful image, and one Barnett recalls when asked what his company offers that an overseas supplier can't. "The biggest issue is we're able to work with them face-to-face; we're not long-distance over the phone. We talk the same language, and where their need has to be met, we can work with them--whether that means overtime, double-time, or whatever the case may be. And then we're going to cut four to six weeks on shipping time right there while that vessel (from overseas) is coming across the water," he said.
Customers are beginning to look beyond price, especially since they're seeing an increase in cost coming from overseas, Barnett added. "It all comes down to, 'Do we still have to have the part for pennies, or are we willing to pay a little bit more to get away from the quality issues, the delivery issues, and those types of things?'" Barnett said customers are beginning to ask themselves an important question: "Is this part close enough now in pricing that I can stay at home and get it for basically what I'm getting it for overseas?"
Barnett said he agrees there is much business to be gained from customers returning from overseas, and mentioned President Obama's latest initiative to encourage companies to "in-source" and bring jobs back to America. "If he's willing to offer some better tax breaks for the on-shore people and take away tax breaks for people that go offshore, then that could swing the pendulum a little bit more."
In early January, Obama met with CEOs of different-sized American companies, including Ford Motor Company, which has committed to invest $16 billion in the United States by 2015, including bringing back about 2,000 jobs and shifting production from countries like Japan and China to states like Michigan and Ohio. Obama plans to soon propose new tax provisions to reward companies that bring back jobs and move to eliminate tax breaks for companies that ship jobs overseas.
"We have a huge opportunity at this moment to bring manufacturing back," President Obama said in his State of the Union address on January 24. "But we have to seize it."
Rebecca Carnes contributed reporting to this article.
Readers who have questions about Total Cost of Ownership EstimatorTM software, or are considering reshoring, are encouraged to contact Harry Moser at (847) 726-2975; e-mail: email@example.com for help. If you've already brought manufacturing back to the U.S., please send examples of reshoring cases to firstname.lastname@example.org and to Harry at the above email address.
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