Over the last 10 or more years, industrial cities in Asia boomed as U.S. and European manufacturers rushed to source component parts and products from that region.
There were several motivations for this trend. First, U.S. manufacturers of finished goods, wishing to expand the sale of their products to consumers in the growing Asian market, desired to develop local Asian assembly plants.
Secondly, component part manufacturers that were supplying those U.S. manufacturers of finished goods in the U.S., were motivated to set up new factories in Asia, close to those new assembly plants to lower transportation costs and service them better. Finally, U.S. companies saw Asian-sourced parts and products as a way to lower the costs of products produced here in the U.S. for sale in the U.S. market. This last reason seemed an economically sound decision based on significant Asian labor rate differences, and in many cases, off-shoring was part of an operations strategy driven from the highest ranks of Fortune 1000 companies.
What pundits are observing:
As time has progressed, however, the Asian-sourcing cost benefits are being reconsidered. Business Week stated in their 2012 article on the subject:
“China’s cost advantage is gradually eroding. In 2005 production in China was 31 percent cheaper than in advanced nations, according to the Hackett Group’s calculations. By 2013 the gap will be down to 16 percent, small enough for U.S. production to make sense in some cases…”
And quoting the Obama administration, Business Week continued with,
“Now, a combination of rising wages for Chinese workers, a strengthening Chinese currency, and a new appreciation of the virtues of domestic production—including low-cost natural gas—has sparked a return to U.S. manufacturing.
As a result, a growing portion of outsourced parts are being repatriated into the U.S.
Some off-shoring rationale remains:
Establishing primary parts supply in Asia is a sound strategy under the following circumstances: a) when the manufacturers of the ultimate end-product the parts go into is in the Asian region, b) when the markets the ultimate end-product is intended to serve is the Asian market, and/or c) when the labor content of the part is extremely high.
On the other hand …
The rationale for off-shoring loses some its strength under other circumstances; 1) the parts are for new products manufactured and sold primarily in North America, 2) the parts are completely new and are likely to undergo multiple iterations and design optimization changes, 3) the supply chain responsiveness / feedback loop needs to be fast, and 4) the cost of inventory and the quantity of committed parts in the delivery loop (truck-train-container ship-customs-train-truck) is simply too long and/or too risky.
This reasoning is borne out by John Shook, a manufacturing expert and the CEO of the Lean Enterprise Institute, when he told The Atlantic,
“There was a herd mentality to off-shoring. But it was also the inability to see the total costs – the engineers in the U.S. and factory managers in China who can’t talk to each other; the management hours and money flying to Asia to find out why the quality they wanted wasn’t being delivered. The cost of all that is huge.”
Re-Shoring with Reason:
The four reasons for reconsidering off-shoring, listed previously, act as reasonable filter by which to judge the wisdom of a re-shoring effort. In addition, there are more immediate issues that may affect the consideration, specifically with respect to plastics part supply.
Quality: When the quality, dependability and integrity-of-supply of plastic parts must be assured, re-shoring must be seriously considered. It is not rare that unauthorized changes in the material used, or the relative mix of virgin and re-grind materials have been discovered. The result is degradation of the mechanical characteristics of the parts – and the long and painful task of working through the extremely long supply-chain to see what parts at what manufacturing levels and where have been affected. The lost time is multiplied in this scenario. That lost time equates to lost customer credibility, lost quality reputation and significant unexpected costs.
Prototyping Engineering Changes: There is significant economic value in rapid time-to-market in today’s economy. It is simply easier for many reasons (language, time zone commonality, reduced travel time, reduced availability of prototypes) to work with a domestic supplier for new parts and introducing innovations.
Made in America: When there is merit in “Made-in-America” branding, a domestic source of supply is essential. We have all probably read of the embarrassing situations where souvenirs, handed out at some official government function, were found to bear the label “Made in China”. Some consumer products simply demand domestic source consideration.
Taking the Proper Steps for Re-shoring:
For those companies that have experienced difficulty in off-shore supply of their plastics parts, and need to reconsider the geographical source of that supply, the following steps provide a rigorous approach to assuring that re-shoring is completed successfully.
1. Create a Pre-Reshoring Assessment Checklist: That checklist includes:
• Review part drawings for currency and accuracy
• Examin recent sample parts for compliance to specification
• Check material requirements: Is the specified material actually being used? Is its specification still appropriate?
• Review the tooling documents: Over the life of a molded part, it is possible that tools may have been modified or repaired and their drawings may not be current.
• Identify current quality concerns
• Review existing production documents (FAI, Cpk data)
2. Request a Comprehensive Proposal from a Domestic Molding House:
Non-rigorous approaches stop with a simple quote. But, the discipline of preparing a comprehensive proposal provides the added assurance for a successful and dependable parts supply transition. An experienced molding house, one that has successfully accomplished re-shoring in the past, should be able to deliver a proposal that details the process steps to be followed, the disciplines that will be used, the timeline, team, milestones, checkpoints, pilot runs, testing and production switch-over, all the steps that will be taken to assure a bump-less transition.
A quote will give you a piece part price. A quote is not a plan. Realizing the benefits of re-shoring requires a plan.
3. A comprehensive proposal should include:
a. A PFMEA (Product Failure Mode Effects Analysis : A PFMEA identifies and evaluates the potential failures of a process. PFMEA also establishes the impact of the failure and identifies and prioritizes the actions needed to reduce risk.
b. AtTool Qualification Step: In this step the tool is inspected for wear and tests are run to assure that the mold and the molding process using the specified material, will produce parts which hold their dimensional integrity. The molding process is optimized using Scientific Molding and Design of Experiments (DOE) techniques.
c. A planned time for some Tooling Adjustments: Should the process experiments point to some deficiency in the mold tooling, modifications must be made. If this stage is not needed good, but planning for no tooling adjustments adds unnecessary risk.
d. Process Capability Tests: After the tooling adjustments are made the process is re-validated and its Cpk is evaluated. This is a measure of the inherent repeatability and dependability of the molding process developed.
(For interested readers, Cpk is the process capability index of a process. More specifically, it is the ratio between permissible deviation, measured from the mean value to the nearest specific limit of acceptability, and the actual one-sided 3 sigma spread of the process. A Cpk of at least 1.33 is desired, indicating a process that is well centered in the middle of its range. Centered processes reliably produce quality parts.)
e. Validation of the PFMEA: The PFMEA is validated through test runs and the manufacturing process control parameters as well as operating and inspection procedures are created and reviewed with the customer
This process may seem daunting. However, in the hands of an experience molding house, it is simply a part of normal disciplined operations and should mostly be invisible to the customer.
Re-shoring has strong merit in a number of essential business circumstances:
• when Quality is problematic,
• when increased supply chain responsiveness is crucial,
• when there’s a need to decrease inventory vulnerability,
• when shorter time-to-market, quicker design adjustments and easier collaboration is essential to quick new product introduction, and
• when Made in USA branding has meaning to customers..
Rigor and discipline are required to realize the full benefit of a re-shoring effort. The process detailed in this blog posting is rigorous – and may, to some, seem overkill. However, failure to follow such a process almost always generates problems. And while no process is problem free, we know this one works – and works well.