Resilient supply chains are fundamental to our national security and economic prosperity. The pandemic-induced collapse of global supply chains has launched a national movement to strengthen domestic manufacturing. Long-term manufacturing growth depends upon U.S. competitiveness and reshoring. With carefully chosen process improvements, strategies and new technologies, manufacturers can increase capabilities, capacity and innovation, leading to new levels of efficiency and quality control. Building a competitive advantage will unlock more reshoring opportunities.
U.S. firms can gain a competitive advantage by investing in advanced manufacturing technologies and processes. Smart manufacturing, also known as Industry 4.0, encompasses coordinated physical and digital processes both in factories and across supply chains to optimize operations. On average, companies undertaking smart factory technologies have seen an increase in production output (10 percent), capacity utilization (11 percent), and labor productivity (12 percent). A survey of C-suite executives revealed that 60 percent say digital transformation will be their most critical growth driver in 2022. These “smart” opportunities can increase competitiveness to enable more reshoring.
One such company is defense contractor Lockheed Martin. The company’s electronics assembly plant in Lufkin, TX, has adopted the IPC-CFX standard, a software standard that facilitates machine-to-machine communication, to achieve an ultra-secure, IIoT-based smart factory. “There are so many opportunities for the enhancement of manufacturing through the smart use of data,” says Jarrod Webb, manufacturing robotics engineer at Lockheed.
Automation is another weapon for cost-competitiveness. Sorrento Therapeutics, a biopharmaceutical company, knows that. The company is constructing a new U.S. production facility in San Diego. The facility will include a fully automated assembly line with an initial capacity of 6 million COVID-19 rapid antigen detection tests per month. The line is expected to be up and running by the end of the year.
The Rodon Group, a provider of injection-molded plastic parts, also found reshoring to be a successful strategy. Several years ago, Rodon reshored assembly of its K’nex brand construction toy from China to its plant in Pennsylvania. “All of a sudden, the stuff you thought you were saving on overseas, you’re not saving,” says Michael Araten, chief executive of Sterling Drive Ventures, the firm that owns Rodon Group. Rodon later sold K’nex to Florida-based toymaker Basic Fun.
The pandemic has provided other reshoring opportunities for Rodon, such as plastic parts for a customer’s COVID-19 test kits and a Rodon-developed special plastic handle for cartons that can withstand the cold temperatures inside freezers that store vaccines. Recently, Rodon developed a flexible nasal swab in consultation with Fox Chase Cancer Center and is now making a million of them a week. Rodon has invested in automation and robotics to compete with lower-cost offshore manufacturers.
U.S. firms could further close the cost gap with low-cost countries by implementing delivery-improving tools, such as lean manufacturing and quick response manufacturing (QRM). The University of Wisconsin-Madison’s Center for Quick Response Manufacturing has shown that long lead times from offshore suppliers add many indirect costs. By making products in-house and reducing lead times by 50 percent or more, the QRM Center’s partner companies have significantly reduced their indirect costs. Working with U.S. suppliers further reduces costs and, together, the reductions have exceeded 20 percent. That is enough to eliminate the offshore labor cost advantage and increase the percentage of work that is reshorable.
Total cost of ownership (TCO) is the best metric to use for comparative analysis. The Reshoring Initiative’s TCO Estimator is an online tool that helps companies account for all relevant factors to compare the true total cost of domestic and offshore sourcing and siting. These factors include overhead, balance sheet, risks, corporate strategy, and other external and internal business considerations. Using this information, companies can better evaluate sourcing, identify alternatives, and even make a case when selling against offshore competitors.
The U.S. Senate’s U.S. Innovation and Competition Act (USICA) and the House’s America COMPETES Act of 2022 both include funding and policy changes that would enhance the country’s global competitiveness and reduce our dependence on fragile global supply chains. The two chambers are expected to reconcile differences between America COMPETES and USICA before ppadditional votes on final passage of a compromise package.
The Reshoring Initiative has responded to the need for U.S. competitiveness with the Competitiveness Toolkit. The aim is to level the playing field between the U.S. and low-wage offshore competitors by creating a vetted national policy tool to select the optimal actions that will bring back manufacturing jobs with the least collateral damage. The actions will also keep jobs from leaving and increase exports.
When new processes, technologies and strategies are factored into a reshoring project, companies can amplify resiliency and reduce or even eliminate the offshore cost gap. For help, contact me at 847-867-1144 or email me at firstname.lastname@example.org. Look for me and The Onshoring Project this September at IMTS2022. We look forward to discussing reshoring opportunities.