At a time when many manufacturers are re-evaluating their supply chains, some are moving production lines and sourcing back to the United States. Manufacturers that consider a total-cost-of-ownership approach may find new opportunities in the trend.
Mitchell Metal Products, a contract manufacturer based in Merrill, Wis., was recently awarded the National Reshoring Award by the Reshoring Initiative and the Precision Metalforming Association for its reshoring of a product line from Asia back to the United States.
Mitchell supplies parts and wreath rings to companies throughout North America and Europe, and is a preferred parts supplier to furniture, window and computer manufacturers. Mitchell CEO Tim Zimmerman said recently that the company was able to reshore a handle sub-assembly product back to the U.S. last year, offering both increased production and significant cost savings to the client.
Zimmerman said they took everything into consideration, offered an initial quote and provided total-cost-of-ownership calculations. Because it was a more complex sub-assembly, they also brought in two subcontractors and disclosed them to the client. In brokering the deal, Mitchell used the Total Cost of Ownership Estimator from the Reshoring Initiative.
“They were able to let THEIR CUSTOMERS know they had a U.S.-based source that was cost competitive and had nearly unlimited production capacity compared to their old supply chain.”
According to the organization, companies often make sourcing decisions exclusively on price, which can often result in up to a 30% miscalculation of actual costs. TCO Estimator factors in everything from overhead and risk to corporate strategy. Zimmerman said it helped Mitchell and the client attain a clearer picture of costs. One of the biggest expenses was a forgone opportunity costs because the Asian manufacturer was only able to produce 1,500 units per quarter and orders had to be committed four months in advance.
“They were ultimately able to justify not on the cost of purchasing the product but in investing along with us in the tooling we’d need to make this product domestically,” Zimmerman said.
By moving the subassembly back to the U.S., the client was able to grow production to 30,000 units from only 4,500 the previous year. This immediately offered new volume and business opportunities. “They were able to go to their end customers, which happened to be big box stores, and let them know that they had a U.S.-based source that was cost competitive and had nearly unlimited production capacity compared to their old supply chain,” Zimmerman said.
Zimmerman said the U.S. has become more competitive due to rising transportation and labor costs abroad. When contract manufacturing high-volume runs started moving to low cost offshore markets in the late-80s, Mitchell made a conscious decision to become better at manufacturing the higher mix, lower-volume products that were staying in the U.S. The company invested in significant additional capability to move into larger-format parts that were not as easily produced offshore and were expensive to shop.
“I was the sales manager at that time and we really began to protect ourselves against the offshore influence. It worked and it also paid off when some began to question the continuity of their offshore supply chains,” Zimmerman said.
That strategy has helped the company thrive and even survive the Great Recession of 2008 “without having to lay anyone off,” Zimmerman said. The labor cost differential between the U.S. and China has now “narrowed considerably” over the past five to seven years, Zimmerman said. Shipping costs have also continued to rise, adding to a combination that he said has made U.S. manufacturers become more competitive on a global and domestic basis. In recent years, OEMs have also started to recognize the value of sourcing materials closer to home, he said.
“When you combine all of that, domestic manufacturing sources are looking a lot more competitive. We supply a number of our OEM customers on a daily basis and that’s something you can’t get from offshore sources,” Zimmerman said.