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How to Help Your Customer Objectively Decide Harry Moser Mold Expo - - PowerPoint PPT Presentation

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To Offshore or Reshore: How to Help Your Customer Objectively Decide Harry Moser Mold Expo President 11/6/19 Reshoring Initiative Canada/U.S.? Most of my data is for the U.S. However: U.S. reshoring creates opportunities for

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Harry Moser President Reshoring Initiative Mold Expo 11/6/19

To Offshore or Reshore: How to Help Your Customer Objectively Decide

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Canada/U.S.?

⚫ Most of my data is for the U.S. ⚫ However:

⚫ U.S. reshoring creates opportunities for Canada, esp.

Windsor/Ontario

⚫ @ 0.76 USD, Canadian competitiveness is:

⚫ Quite good in the U.S. ⚫ Better than U.S. against China and others.

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Definitions

⚫ Reshoring/Backshoring/Onshoring/Insourcing: Bringing

back manufacture of products that will be sold or assembled here.

⚫ FDI: Similar logic. Different owner. ⚫ Localization. Producing near the consumer. ⚫ U.S. potentially the biggest beneficiary.

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Flawed Company Economic Models

60% of manufacturers:

⚫ Apply “rudimentary” total cost models

⚫ Wage Arbitrage ⚫ PPV (Purchase Price Variance) ⚫ Landed Cost

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

products

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

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Trends Favoring Domestic Sourcing

⚫ eCommerce: Requires immediate replenishment ⚫ Heavy retail discounting: Requires lower inventory,

smaller MOQ

⚫ Preference for Made in USA: Helps with volume/margin ⚫ Mass and local customization: Requires quick response ⚫ Lean: Commitment to eliminating waste ⚫ Trade dispute ⚫ Advanced Manufacturing

Sources: Mostafiz Uddin, Dhaka Tribune; Bill D’Arienzo, Apparel Magazine; Janice Wang, Sourcing Journal, Reshoring Initiative

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Industry 4.0

⚫ Advanced manufacturing favors developed countries:

⚫ Less labor/unit of output ⚫ Required labor is higher skilled with smaller % wage

difference vs. developing countries

⚫ More capital intense. Equipment is as or more

expensive in other countries due to VATs.

⚫ Enables fast, customized customer response,

impossible from Asia

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Unit Labor Costs Rising in China

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Costs Converging

⚫ “There is not much of a difference between the costs in China and

the United States.”

⚫ “You have to have a very good case today to justify producing

something in China and shipping it to the U.S.” Source: NYT, Kim Fausing, CEO, Danfoss

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Automotive OEMs/Suppliers Move Towards Localization

⚫ Factors: tariffs, trade restrictions, trade wars, Brexit ⚫ Regional supply chains = more stability ⚫ Offshoring for cheap labor no longer sustainable

economically/politically

⚫ Automation leveling the playing field vs low cost labor ⚫ OEM / supplier increase in collaboration/joint ventures to

share knowledge, costs, shorten time-to-market

Source: Automotive World, “Automotive OEMs and suppliers move towards regional production”, Aug. 6, 2019, https://www.automotiveworld.com/news-releases/automotive-oems-and-suppliers-move-towards-regional- production/

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Reshoring + FDI

  • Mfg. Job Announcements

Cumulative

Source: Reshoring Initiative Library

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Manufacturing is Beating the Trend by about 3.3M

y = 18486e-0.031x R² = 0.9123 6000 8000 10000 12000 14000 16000 18000 20000 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Thousands of Jobs Year Historical Current

  • Expon. (Historical)

BLS Manufacturing Employment, 000s

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The Reshoring Initiative Provides

⚫ Online Library of 6,000+ reshoring articles ⚫ Case Study template for posting cases. ⚫ Free Total Cost of Ownership (TCO) software for:

⚫ Companies for sourcing ⚫ Suppliers of parts and equipment for selling

⚫ Import Substitution Program ⚫ Supply Chain Gaps Program ⚫ Competitiveness Toolkit ⚫ Statistics from TCO and Library databases

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TCO Comparison Example

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Some Total Costs other than Price

⚫ Hard:

⚫ Duty, fees, insurance ⚫ Freight ⚫ Carrying Cost of Inventory ⚫ Travel: Select, start-up, audit ⚫ Inventory handling vs. JIT

⚫ Risks & Strategic:

⚫ Emergency air freight ⚫ Innovation ⚫ Quality ⚫ IP risk ⚫ Opportunity costs ⚫ Made-in-USA

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Some Mold-Specific Factors

⚫ Mold component CAM files ⚫ Ease of Revisions ⚫ Part accuracy ⚫ Cycle time ⚫ Mold maintenance ⚫ Mold life ⚫ IP risk

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Deming on Total Cost

“End the practice of awarding business on the basis of price tag. Instead, minimize total cost.”

Source: “4th Key Principle for Management,” Out of the Crisis, W. Edwards Deming

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How Large are the Hidden Costs?

RESEARCHER/BASE HIDDEN COSTS, % of Price Six U.K. manufacturers 25-50% European auto industry re ICB (Boards) 15%+ Parker/Dewhurst 24% Booze & Co. 17.5%

  • Prof. John Gray,

Ohio State U. More than price difference in cases studied Reshoring Initiative 15-25%

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PPV and Landed Cost Miss a lot of TCO

18 100% 87% 77% 13% 23% 0% 20% 40% 60% 80% 100% 120% TCO LANDED COST PURCHASE PRICE

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Chinese Ex Works Price, % of U.S.

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Source: Reshoring Initiative TCO Estimator user database

Source: Reshoring Initiative TCO Estimator user database

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Chinese Price and TCO, % of U.S.

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

0% 25% 50% 75% 100% 125% 150% 175%

Chart Title

Price % TCO w/15% Tariff TCO % Source: TCO user database

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Injection-Molded Plastic Footwear

Sources: Kavita Kumar. St. Louis Post-Dispatch. “Making shoes in the U.S.? An Overland Company Finds a Way.” January 11, 2014. http://www.stltoday.com/business/local/making-shoes-in-the-u-s-an-overland-company-finds/article_ba482a99-5615-5e98-84c1- 9ffe2b8fd06c.html

  • China to Hazelhurst, GA
  • $25 million total combined

investment

  • Up to 250 jobs
  • Reasons:
  • Walmart pledge
  • Redesign to minimize labor
  • Automation
  • Rising wages and fuel costs
  • Tariffs
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Children’s Toys

  • China to Hudson, OH
  • 50 jobs
  • $3 million investment in new injection molding

technology

  • Reasons:
  • Freight cost
  • Rising wages
  • Image/brand
  • U.S. price of natural gas, chemicals, electricity

Source: Rachel Abbey McCafferty, “Little Tikes growing after shifting production from China to the U.S.” Plastics News. August 27, 2013. http://www.plasticsnews.com/article/20130827/NEWS/130829941/little-tikes-growing-after-shifting-production-from-china-to-us

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Injection-Molded Plastics

  • Denver, CO
  • Contract manufacturer benefited from reshoring
  • $2 million investment in machinery
  • 200 employees
  • Reasons customers reshored:
  • R&D
  • Lean
  • Supply Chain Interruption Risk
  • Higher productivity
  • “Cradle to grave” service

Sources: http://bluetoad.com/publication/?i=172739&p=10 http://plasticsnews.com/headlines2.html?id=24393 http://www.plasticstoday.com/articles/intertech-adds-two-presses-central-chiller-response-reshored-business022520131

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Custom Injection Molder

  • Reduced delivery time by reshoring
  • Delivery times for customers cut from 6 months

to 6 weeks

  • Customer’s sourcing:
  • Was 1 million parts per month from China
  • Now 3.5 million parts per month from MDS
  • Faster delivery time and consistent quality has

helped fuel growth

Source: MDS adds new LSR press to meet rising demand, http://www.plasticsnews.com/article/20160329/NEWS/160329809/mds-adds-new-lsr-press-to-meet-rising- demand#utm_medium=email&utm_source=pn-daily&utm_campaign=pn-daily-20160329&email_pndaily

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Plastic Molding

  • Poly Tech purchased a plastic injection molding

facility in Prairie Grove, AR in 2012

  • 46 jobs since 2012, up to 10 more to be added
  • $7 million/year in sales of reshored products
  • Walmart announced its US manufacturing

initiative

  • Sales shot up immediately
  • Suppliers began looking for ways to reshore

plastics manufacturing from China

  • Expects to do $20 million in sales by 2020

Source: Kim Souza, “PolyTech gears up for growth aided by Walmart manufacturing push“, The City Wire. August 13, 2014. http://www.thecitywire.com/node/34260#.Vc7a1njlc64

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Plastics Injection Molding

⚫China to Santa Rosa, CA ⚫Medical and Telecom customers ⚫4+ customers reshored, including JDS Uniphase

and ECO Funnel™

⚫Reasons:

⚫ Transport costs up ⚫ Wages up ⚫ Quality issues common and difficult to handle

Source: Design2Part mag, Yes, You Can Go Home Again, Say Some Manufacturers by Mark Shortt

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⚫ 50% of Frisbee production ⚫ China back to CA and MI ⚫ 8 jobs added

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Promote Reshoring

Several U.S. molders/moldmakers promote reshoring on their websites: Benefits, how, why, etc.

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Canadian Cases

⚫ Reshoring ⚫ FDI ⚫ Kept From Offshoring

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Circuit Boards

⚫ Woodridge, IL ⚫ Supplies heavy equipment companies ⚫ Had quality issue with a Chinese component ⚫ Found local IL source ⚫ Result:

⚫ Quality problem fixed ⚫ Inventory cut by 94%

⚫ $60M order

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Negative Issues Offshore: Top 10

Source: Reshoring Initiative Library, December 2017 .

Rank Negative Reasons Offshore # of times cited 1 Quality/rework/warranty 292 2 Freight cost 196 3 Total cost 147 4 Delivery 100 5 Inventory 91 6 Rising wages 88 7 Supply chain interruption risk/Natural disaster risk/Political instability 78 8 Intellectual property risk 64 9 Communications 61 10 Green Considerations 53

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Rank Positive Reasons to Reshore/FDI # of times cited 1 Government Incentives 527 2 Proximity to customers/market 493 3 Skilled workforce availability/training 446 4 Image/brand Made in USA 398 5 Eco-system (supply chain) synergies 336 6 Lead time/Time to market 251 7 Infrastructure 239 8 Automation/technology 211 9 Manufacturing/engineering joint innovation (R&D) 155 10 Higher productivity 141

Positive Reasons to Reshore: Top 10

Source: Reshoring Initiative Library, December 2017

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EU Mfg. Skills Gap

⚫ Not enough training programs to support the

advanced manufacturing economy

⚫ Lack political attention, funding/other resources

to catch up to fast-changing industries

⚫ Too few students pursuing engineering/technical

studies: fear manufacturing work is “doomed.”

⚫ Example: German economy suffering due to lack

  • f skilled workers limiting industrial capacity

and impeding investment

Source: The Wall Street Journal, “Europe Is Hiring—But Its Workforce Isn’t Ready”, Oct 29, 2019, https://www.wsj.com/articles/europe-is-hiringbut-its-workforce-isnt- ready-11572343201?mod=hp_listb_pos1

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Local Skilled Workforce Recruitment

Issue Solution “Trades” and “vocations” image Call them “Professions” “Middle skills” “Technical Skills” Manufacturing career image due to

  • ffshoring

Industry collect and media report the local reshoring case of the month. Use

  • ur Case Studies feature.

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Reshoring Recruitment Skilled Workforce Productivity Competitiveness

Virtuous Cycle: Reshoring/Skilled Workforce

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Helping Companies Compete With Imports

⚫ Import Substitution Program – Substitute domestic

production for imports

⚫ We provide data on U.S. importers of the products

you produce or could produce domestically:

⚫ Consignee company ⚫ Address ⚫ Product ⚫ Tons/year ⚫ ≈ $/year ⚫ Offshore supplier

⚫ Train your team to sell using TCO

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North American Metalworking Reshoring Award

Sponsored by: AMT, NTMA, PMA and Reshoring Initiative

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Recommendations

⚫ Use TCO for sourcing and selling In Canada and

U.S.

⚫ Enter N. American Metalworking Reshoring

competition

⚫ Start a Canadian Moldmaking Reshoring Award ⚫ Promote your individual and collective reshoring

successes: media, website, etc.

⚫ Promote stakeholder benefit of local sourcing ⚫ Work with local Economic Development to

encourage reshoring

⚫ Revisit customers lost to offshore. Talk TCO.

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U.S. Mexico Canada Agreement

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USMCA

⚫ Mostly unchanged from NAFTA. ⚫ Most important changes:

⚫ To qualify for zero automotive tariffs:

⚫N. American content: 62.5% → 75% ⚫40% of content by workers >$16/hour

⚫IP protection ⚫ Tariff on non-qualifying products = 2.5%

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Status?

⚫ Ratified by Mexico. ⚫ Must still be ratified by U.S and Canada.

⚫ Democrats object to some terms: labor,

pharmaceutical, environmental, weak enforcement.

⚫ When will U.S. ratify?

⚫ Good chance of 2019. ⚫ Otherwise 2021

⚫ Good start. ⚫ Our recommendations for next step.

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China/U.S. Trade War

⚫ Phase 1:

⚫ Was to be signed in Chile at APEC conference Nov 15

to 17. Cancelled. Scrambling!

⚫ Modest beginning:

⚫ U.S. does not impose more tariffs, reduces some? ⚫ China buys more U.S. ag products.

⚫ Democrats, union based, will be as tough as Trump. ⚫ World seems in agreement on need for change ⚫ My forecast:

⚫ Modest agreements by early 2020. ⚫ Ongoing trade conflict for decades.

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US Firms Rethink China Presence

⚫ 15% of those shifting out of China are shifting to

the U.S.

⚫ 2018-2019 obstacles:

⚫ Non-tariff retaliatory measures (~50%) ⚫ Increased inspections/slower customs

clearance (20%)

⚫ Bureaucratic oversight/regulatory scrutiny

(14%)

Source: Industry Week, “U.S. Firms Rethink China Presence Due To Trade War: Survey”, May 22, 2019, https://www.industryweek.com/economy/us-firms-rethink-china-presence-due-trade-war-survey?NL=IW-07&Issue=IW- 07_20190523_IW- 07_761&sfvc4enews=42&cl=article_3_b&utm_rid=CPG03000006797420&utm_campaign=34906&utm_medium=email&elq2=349c d9decc674b0f8d84679a36016ad6&oly_enc_id= ; AmCham China/AmCham Shanghai Survey, May 22, 2019, https://www.amchamchina.org/uploads/media/default/0001/11/8ff21b4b6efac1163c9072c6569fe96250f3a8dd.pdf

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A Non-Profit with 23 Sponsors

Silver

Platinum Gold Silver Bronze Steel Iron

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Accelerate Reshoring In N. America

Contact: Harry Moser Founder and President 847-867-1144 harry.moser@reshore now.org www.reshorenow.org

Useful links: ACETool Cost Differential Frontier Total Cost of Ownership Estimator™ Skilled Workforce Import Substitution Program