Last year on May 12, 2010, a special event took place at the China cnc machining in Irvine, California. I wish I could say it was an early beach vacation for me, but it was actually a sponsored re-shoring fair held by the National Tooling and Machining Association alongside the Precision Metals Association. The entire agenda covered the topic of re-shoring or bringing back manufacturing to the United States that has been outsourced to foreign countries. Companies originally thought that by off shoring production, they would save exorbitant amounts of money in direct labor and resources, when companies have found out the hard way that it is in fact the other way around. The positive end to all of this is that these organizations have become valid case studies for companies who currently keep their work domesticated.
Shipping and Delivery Issues
While consumers remain focused on price when making a purchasing decision, and not where a product is produced or where their customer service call comes from, we as an entire society have experienced what disruptions across the oceans can mean for production here. In the wake of the tsunamis that devastated Japan earlier this year, many companies, including Toyota had to halt final assembly and production in the United States. International shipping ports in the country were severely damaged, and the breakdown of the transportation infrastructure prevented parts from ever reaching the ports. Toyota temporarily shut down its 13 U.S factories due to parts shortages, which impacted 25,000 workers here. Many companies in the U.S have parts suppliers in Asia, including Japan that suffered the same problems. Natural disaster is certainly one element that can get in the way of international lead times. However, shipping issues aren’t always due to natural disasters.
Amfor Electronics is a U.S company that is based out of Oregon. Like many, they outsource the production of their cables and assemblies for OEM distributors to China. When you deal with clients they always want to know when they are going to have the product at their doorstep. This is an area that the company has had trouble with. Additionally, it is hard to gain enough insight to foresee problems in the supply chain after the manufacturing shipment because uncertainty in transport, customs, governing bodies, and freight companies. Moreover, we all know that sometimes in the middle of the project that things need to be changed. Because of the distance and the lack of communication, this has also caused problems for this company. The one thing to conclude from all of this is that time equates to money. For companies who have turned to being lean and have moved towards a JIT or Just-In-Time demand pull system, this model simply does not work. For this very reason, Amfor moved all of their production back to U.S soil. The other obvious trouble is quality control.
I think society as a whole got a good snapshot of what was happening when toys and other products were reaching store shelves with high levels of lead. Manufacturers in China can substitute materials without contract approval, which can be a huge disaster. I think this is where people’s value system started to sway a little, and support of re-shoring started to take root. In another article about re-shorting efforts, Gregory Price gave some commentary from the perspective of the alternative energy industry, which is very lucrative these days. Mr. Price is the founder of Oregon Small Wind Energy Association, where works alongside wind system manufacturers. Those manufacturers have tried to cut costs by outsourcing like everyone else, with dismal results. Main assemblies for turbines are damaged or flat out don’t meet the specifications for their application. At that point, they’ve incurred cost for production, shipping, and they’ve lost time in order to get the turbine parts that they need to send these to the customer. This also means that parts for routine maintenance would likely have to be ordered 6 months out, that way the company would have them on hand. This means maintaining a certain level of safety stock, when a domestic supplier may be able to turn these parts around, at least a small batch of replacement parts in just a few days.
Think About This