Reshoring in Practical Terms: Tools

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1 Reshoring in Practical Terms: Tools IEDC Fed Forum Harry Moser President Reshoring Initiative

2 Tools Include Tool ACETool Cost Differential Frontier Total Cost of Ownership Estimator TCO and Supply Chain Optimization Usage Overview, input data for TCO and Toolbox Impact of lead time on lost orders and obsolescence TCO calculator for 30 costs TCO and supply chain help

3 ACETool

4 How to compare: A local supplier that is positioned to deliver to order and is next to R&D An offshore supplier that offers a unit cost that is 30% cheaper Intuition: innovation and service matter, but hard to take action based only on intuition Quantitative-finance tools allow us to uncover the hidden profit potential in responsiveness 4 Hidden profits of responsive supply chains March 22, 2015

5 Product A Demand peak 3X median demand 1 in 10 demand periods (high volatility) Selling price $100 Local production cost $44, offshore production 30% cheaper Liquidation value after the demand period $20 5 Hidden profits of responsive supply chains March 22, 2015

6 Local production dominates 6 Hidden profits of responsive supply chains March 22, 2015

7 Product B Demand peak 2X median demand 2 weeks a year (moderate volatility) Selling price $100 Local production cost $44, offshore 30% less Inventory holding cost if held over to the following demand period $2 7 Hidden profits of responsive supply chains March 22, 2015

8 CDF + TCO matches cost differential 8 Hidden profits of responsive supply chains March 22, 2015

9 The Industry-Led Reshoring Initiative Provides Free Total Cost of Ownership (TCO) software for: Companies for sourcing Suppliers of parts and equipment for selling Online Library of 2,000+ reshoring articles Statistics from TCO and Library databases Case Study template for posting cases. Solutions to major supply chain problems Motivation for skilled manufacturing careers

10 TCO Estimator benefits Provides a single TCO for each source Flexible: values are 100% user selected. Broad: 29 cost factors. Via pull down menus you automatically insert: Freight rates for 17 countries Duty rates for parts or tools, e.g. molds Current value and 5 year forecast of TCO. Explanations and references to help select values. Instructions

11 TCO Example: a Part Chinese unit price $70 U.S. unit price $100 # units/year 12,000 unit weight, lbs 2 Shipments/year 6 product life, yrs 5 Packaging* 1% Payment on shipment Yes Quality* 2% Product liability risk* 0.5% IP risk* 1.9% Innovation* 0.5% Trips/yr 2 Carrying cost, rate 22% Emergency air freight %* 5% Wage inflation, annual* 8% Currency appreciation, annual* 5% * Chinese differential vs. U.S.

12 TCO Comparison Example

13 PPV and Landed Cost Miss a lot of TCO 120% 100% 80% 13% 23% 60% 40% 100% 87% 77% 20% 0% TCO LANDED COST PURCHASE PRICE 13

14 19 real 2012 TCO cases, China vs. U.S. Comparison Basis % of cases where U.S. has the advantage Price 5% TCO 53% Difference 48%* *Conservatively 25% might return if companies shifted to TCO Source: TCO user database

15 300+ Cases Slides Bringing Production back from China: Water-heaters, fridges, and washing machines Unionized facility in Louisville, KY 1300 jobs, renovated facility, $800 million invested Reasons: Tax incentives High-tech new model Ease of design collaboration with workers: retail price -20% 2 tier contract Chinese cost: -30% becomes +6% considering inventory and delivery problems Will move a significant piece of appliance production back 15

16 Walmart s U.S. Manufacturing program Walmart s increase in U.S. manufactured purchases: $250 Billion over 10 years $50 Billion in the 10 th year In the 10 th year: Approx. 300,000 manufacturing jobs* Approx. 1 million total jobs** Walmart Actions: Increase what we already buy of U.S. manufactured goods Source new to Walmart U.S. manufactured goods Reshore the manufacturing of goods we currently buy by facilitating and accelerating efforts of our suppliers *Reshoring Initiative **Boston Consulting Group

17 Consumer Preferences for USA % of U.S. consumers who view products Made in America very favorably: 78% (2012) up from 58% (2010) (AAM June 28-July 2, 2012) More likely to buy U.S. product 76% Less likely to buy Chinese product 57% (Perception Research Services Intl. survey 7/12, 1400 consumers) We have a summary of 15 surveys on consumer preferences for Made in USA 17

18 Local Skilled Workforce Recruitment Issue Trades and vocations image Manufacturing career image due to offshoring Solution Call them Professions Industry collect and media report the local reshoring case of the month. Use our Case Studies feature. 18

19 Action Identify local imports by U.S. or foreign companies Suggest to companies they source locally Train companies on TCO to overcome issue of higher local price Needed further cost reductions Economic Development Program Starting in PA, MS, Central NY Source/Responsibility Datamyne EDO/MEP/ etc. Reshoring Initiative MEP/ Comm. College/ Technology Suppliers/EDO 19

20 Need Boots on the Ground in PA and MS Need Your help Suggest companies where you lost to offshoring We will visit the companies, educate on TCO and encourage reshoring MS: April 23 in Canton PA: Details: MS and PA Reshoring Reshoring Blog Reshoring Initiative

21 How to get started Ask about pain and opportunities: Delivery/air freight Orders lost due to delivery or slow response Quality Excess inventory Travel Late night calls IP loss or risk Regulatory issues Purchase price rising Corruption Violence Natural disasters or political instability 21

22 Help reverse the offshoring flood now! Contact: Harry Moser Founder and President Recruiting trainees for the skilled manufacturing workforce: 22