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Reasons mount for manufacturers to re-think the “total” vs perceieved cost of off-shoring operations


U.S. manufacturing—or at least a portion of it—appears to be on course for a U-turn as work previously pushed offshore might be coming home. Statistics on the reshoring of U.S. manufacturing are hard to come by, but mill suppliers see an interest.

"I can't put a number on it, but there is a fair amount of chatter on this subject among our customer base," said Dennis Oates, president and chief executive officer of tool steel producer Universal Stainless & Alloy Products Inc., Bridgeville, Pa.

Oates said it was difficult to say just how much reshoring might have contributed to Universal's first-quarter financial improvement, but he agreed that the more tooling business that returns to the United States, the better are the chances that end-product itself will return.

Based on his discussions with customers, Oates believes there are three reasons why some shops are looking to bring work back. He said the short lead times and reliable deliveries that domestic mills like Universal have worked to achieve are helping domestic customers post the fast inventory turnarounds needed to operate efficiently in a competitive global market. And the strong dollar of years past that encouraged going overseas is no longer a compelling reason to source offshore. Finally, several companies that took manufacturing offshore in the 1980s and 1990s have since come to the conclusion that it isn't the way to go once a product's "total cost" is computed.

The last point reflects one of the contract machining industry's strongest arguments for bringing work back to the United States and one that's been made repeatedly this year by Harry C. Moser, chairman emeritus of machinery builder GF AgieCharmilles, Lincolnshire, Ill., who has been carrying the reshoring message around the country for the Precision Metalformers Association and the National Tooling and Machining Association.

"I'm totally dismayed and I'm not going to take it anymore," he said at a recent West Coast manufacturing exposition, referring to losses to the U.S. manufacturing base.

Moser believes most companies that moved work offshore did so based on f.o.b. price instead of on what he calls the "total cost of ownership," which includes such factors as duties, packaging, freight and the danger of intellectual property "ripoffs." These added costs can change a perceived 15-percent cost advantage for manufacturing in China to an actual 8-percent edge for U.S. companies, he said.

At a contract manufacturers purchasing fair in Irvine, Calif., that also promoted reshoring, Moser cited the hypothetical example of a part made in China with an f.o.b. pricetag of $80 growing to a total cost of more than $93 after such additional costs as freight and backup inventories are taken into account.

According to the Federal Reserve, U.S. manufacturers were running at only about 70 percent of capacity in April compared with a historical average of nearly 81 percent. Moser believes that the exit of manufacturing offshore has cost this country between 5 million and 12 million jobs.

The idea of reshoring isn't limited to comparatively small contract shops. In March, Peoria, Ill.-based Caterpillar Inc., the giant manufacturer of construction and mining equipment as well as engines and industrial gas turbines, said it was "contemplating" the shift of excavator production to the United States from Japan. Caterpillar currently produces just two models of excavators at its Aurora, Ill., plant, where it also produces wheel loaders, soil and landfill compactors, wheel dozers and components, and shifting production from Japan could double the number of Caterpillar employees building excavators in this country.

As much as it might signify a trend to bring work lost overseas back to the United States, a Caterpillar spokesman in Peoria emphasized that any shift of manufacturing from Asia to the United States would reflect the company's need to free up capacity in Japan to serve the rapidly growing Asia-Pacific market. But he also acknowledged that he couldn't immediately recall the last time Caterpillar brought a significant amount of work back to these shores.

Not everyone has jumped on the reshoring bandwagon. David Farr, the outspoken chief executive officer of St. Louis-based Emerson Electric Co., who has been critical of Washington's economic policies, doesn't think reshoring is in the cards for his company. "For a global company that has our growth segment outside of the United States, I would say it's wishful thinking," he said during an investors' telephone conference call.

Daniel R. DiMicco, president and chief executive officer of steelmaker Nucor Corp., Charlotte, N.C., said the "theory of reshoring sounds good," especially during an era when millions of manufacturing jobs have been lost in this country. "But the reality of actually building plants in the U.S. becomes quite difficult, and time will tell how reshoring actually plays out," he told AMM, arguing that U.S. industry has been shackled by regulation.

DiMicco noted that after years of trying, Nucor's proposed new pig iron plant in St. James Parish, La., has yet to be issued all necessary permits. Meanwhile, new regulations are implemented on an almost daily basis that "reduces our international competitiveness," he said.


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