Use total cost to justify automation for reshoring
Video: Companies may be considering moving manufacturing abroad or reshoring manufacturing to produce closer to demand. Either way, ensuring that automation and other benefits and costs are factored in is critical to getting the numbers correct. Many companies may have missed criteria in their calculations, said Harry C. Moser, founder and president, Reshoring Initiative. Moser spoke at the January A3 business meeting and the 21st Annual Robotics Industry Forum.
Manufacturers should analyze total costs to justify use of automation for reshoring manufacturing closer to demand, according to Harry C. Moser, founder and president, Reshoring Initiative. The default logic often is to produce products close to where they’re consumed, but specific criteria can help objectively decide where manufacturing should be located to be most profitable.
Other terms for reshoring include localization, nearshoring, and offshoring. In the video clip shown, Moser explains key reshoring concepts. Moser spoke at the 21st Annual Robotics Industry Forum, in January, also the annual business meeting for the Association for Advancing Automation (A3), Robotic Industries Association (RIA), Automated Imaging Association (AIA–Advancing Vision + Imaging), and Motion Control Association (MCA). A3 is the umbrella organization for AIA, MCA, and RIA.
- Some manufacturers have left the U.S. and other locations because companies didn’t do the math properly. Calculations need to go beyond purchase price variance and landed cost, which can ignore 20% or more of the total costs of products manufactured offshore. Other factors include innovation benefits and intellectual property (IP) risks, logistic calculations, training, indexed unit labor costs, currency, and productivity differences.
- By about 2015 average costs will converge between manufacturing in China and in the U.S., according to Boston Consulting Group, which cites many industries where advantages of onshore manufacturing now can exceed offshore.
- The industry-led Reshoring Initiative provides free total cost of ownership (TCO) software for use by manufacturing companies and suppliers. The organization provides more than 800 reshoring examples and a template for submitting information.
- Sometimes when considering manufacturing locations, it’s not an “all here or there” mind-set. For very labor intensive manufacturing, it may be advantageous to produce half in the U.S. and half in Mexico. It’s better to be half of the winning team rather than all of an offshore losing team.
- Reshoring Initiative also provides motivation for skilled manufacturing careers. If unemployed graduates with degrees unrelated to science, technology, engineering, and math (STEM) had understood the need for their expertise in manufacturing, they might have chosen a better career. Manufacturing recruiting, high U.S. standard of living, innovation and global competitiveness, and reshoring are inter-related.
- 21% of large companies are engaged in reshoring initiatives, twice the rate for 2012.
- Reshorers include more than 500 companies, including GE, Apple, Motorola, Ford, Caterpillar, Whirlpool, Scovill, Ace Manufacturing, Intel, GW Plastics, and others. For many, automation is the key to U.S. manufacturing productivity and cost-effectiveness.
- GE chose to reshore manufacturing of water heaters and other appliances to Louisville, Ky. The effort, which created 1300 jobs and involved $800 million in investments, redesigned products and reduced total cost of production by 20% over the same item made in China.
- When reshoring manufacturing of electrical equipment, appliances, and related components, less warranty and rework often result.
- The 2012 U.S. budget specifies the need to consider TCO when considering manufacturing locations.
- Companies can justify domestic investments in manufacturing, process improvements, automation, and training to improve quality, time to market, and profits.
- Reshoring Initiative offers tools for selling and training and helps show that automation saves jobs.
- U.S. Labor Department has been lobbied to change (and has changed) some language to show that education and training, not just education, can increase income. Apprenticeships, certifications, and training pay off.
- The image of manufacturing is improving, which helps with workforce recruitment of skilled talent.
- Reshoring Initiative is a non-profit organization with 38 sponsors, helping to create a safer and sounder economy.
- Mark T. Hoske, content manager CFE Media, Control Engineering and Plant Engineering, mhoske(at)cfemedia.com.
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