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Agenda

Agenda. TCO for Sourcing & Sales 40 min TCO Estimator 5 Check List 5 Illinois Reshoring Initiative 10 Q&A 10 Total 70 min. Reshoring CMRC 2/23/11. Customers: Why to Source Local.

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Agenda

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  1. Agenda • TCO for Sourcing & Sales 40 min • TCO Estimator 5 • Check List 5 • Illinois Reshoring Initiative 10 • Q&A 10 • Total 70 min

  2. Reshoring CMRC 2/23/11 Customers: Why to Source Local. Suppliers: How to sell Local Sourcing. All: Why to support the Illinois Initiative.

  3. The Initiative’s Sponsors Platinum Gold Silver Bronze

  4. Definitions • Reshoring: Bringing work back to the U.S. • Antonym: Offshoring • Synonyms: Backshoring and Onshoring • Nearshoring: Includes U.S., Canada & Mexico • Outsourcing: Work done by another company, wherever located • In-house: work done in the company’s facilities, wherever located

  5. Change the Sourcing Mindset: From: “Offshored is Cheaper.” To: “Local Reduces the Total Cost of Ownership.” Train: OEMs: Why to source local. Suppliers (and unions): How to “sell” local sourcing. Do the best we can on the unlevel field now! Reshoring Initiative’s Objectives

  6. The Industry-Led Initiative Provides Free Total Cost of Ownership (TCO) Software for OEMs and unions/suppliers Online Library of 98 reshoring articles Media coverage of the trend: WSJ, USATODAY, IW, CBS, CNBC, etc. Regional Initiatives Confidence that there will be long-term jobs for Austin Polytech trainees

  7. Logical Foundation 60% of manufacturers: • Apply “rudimentary” total cost models • Ignore 20% or more of the total cost of offshored products* 51% of companies found no financial benefit in offshoring** Sources: * Archstone Consulting survey, American Machinist Mag., 7/16/09 ** Supply Chain Solutions, Grant Thornton, Jan. 2010 survey.

  8. TCO Estimator Available Easily estimate the Total Cost of Ownership Compare onshore to offshore cost 18 user-modifiable cost factors Current and forecast costs For parts and tooling Status: in Beta test at customers and shops Available Free!

  9. TCO Estimator Software: 18 Cost Factors * • FOB Price • Packaging • Duty • Freight: air, surface, all fees • Inventory: en-route, cycle, safety stock, obsolete • Local warehousing • Travel • Rework/quality • Product liability • IP risk • Impact on innovation • Prototype • Forecast wage inflation and currency appreciation

  10. Example Assumptions: a Part * Chinese differential vs. U.S.

  11. TCO Comparison Example: a Moderate Labor Content Part

  12. “As China’s Wages Rise, Export Prices Could Follow” • 24% to 100% wage increases! Source: New York Times, June 7, 2010

  13. Cumulative Cost by Category

  14. Using Estimator for the in-house case Estimator written for comparing outsourced: offshore vs. U.S., so for in-house: • Offshore: Use the transfer price from offshore instead of the “price.” Confirm that the transfer price produces the targeted ROI offshore. • U.S.: Use the Company’s standard domestic cost: fully burdened, variable or ?

  15. The Supply Chain is Focused on TCO Source: Capgemini Global CPO Survey 2010

  16. Top 10 Supply Chain Predictions 2011 # 5. “In the context of taking a broader view of total cost, supply chain organizations will gain a new appreciation for shortening lead times through profitable proximity sourcing strategies.” Reasons: ● Improve overall service levels ● Retain key customers ● Focus on the “costs” of long lead times ● More balanced approach to global sourcing Source:Simon Ellis, Supply Chain Strategies, with IDC Manufacturing Insights 2/2/11

  17. Sourcing Moving Home Slowly 20% of companies brought sourcing closer in 2009 Of which 59% reshored Source: Supply Chain Solutions, Grant Thornton, Jan. 2010 survey. 312 responses.

  18. Deming on Total Cost • “End the practice of awarding business on the basis of price tag. Instead, minimize total cost.” Source: 4th key principle for management, “Out of the Crisis”, W. Edwards Deming

  19. Offshoring contributes to Waste

  20. Offshoring contributes to Instability • Weather • Port strikes • Loss from mishandling • Language problems • Pirates

  21. Impact on Product Strategy • Impact of batch size and distance: • Offshoring → commoditization • Reshoring → differentiation/mass customization

  22. Selling using TCO • Focus on profit impact, risk management, strategic benefits, Lean, Green • Overcome mandates • Many Supply Chain Managers believe • Work with natural allies • Maximize the advantages of proximity • Match “Chinese” price or TCO?

  23. Work with your natural allies! • Supply Chain Managers • Quality Managers • Lean and Green Champions • Regulatory Compliance Managers • Division or Factory Managers

  24. 2010 NTMA / PMA Contract Manufacturing Purchasing Fairs A one-stop for OEMs to find competitive U.S.-based sources. 50+ OEMs. 100+ job shops - machined, stamped, fabricated and molded parts, special tooling (dies, molds, jigs, fixtures and gauges) and special machines.

  25. Purchasing Fairs Results of May 12 Fair • 57 Customers: 64% brought offshored work • 113 shops Next NTMA/PMA Fair • Probably Chicago, 2H2011

  26. Why Reshoring is a Hot Topic A renewed focus on manufacturing by the White House and Congress High international transportation costs High foreign wage inflation Expected Yuan appreciation Low domestic capacity utilization Focus on increasing employment Growing awareness of IP and quality risks Increasing understanding of TCO

  27. Global sourcing not reducing costs % of companies reporting issues: • Unreliable delivery: 65% • Longer lead times: 61% • Poor quality: 61% • Increased costs: 34% Source: The Smarter Supply Chain of the Future, IBM, Jan 2009, 400 executives worldwide

  28. Reshoring Easier than Exporting More There are distinct advantages for a U.S. manufacturer to compete here rather than offshore: Most of the TCO costs Familiar legal and regulatory system Simplicity of selling into huge home market vs. added cost of overseas sales and support No exchange rate issues Cost advantages of greater than 24%, similar to total direct labor % of mfg. cost Timing: quick impact because already selling here

  29. The fastest and most efficient way to strengthen the U.S. economy Reshoring breaks out of: • The economic zero-sum-game of tax/borrow and spend. • The increases in consumer prices of relying solely on currency changes. • The waiting-for-policy-decisions problem. Assures that the pie grows, to the advantage of all Americans.  Focuses on the manufacturing sector which has suffered so many job losses for decades.

  30. Initiative Will Affect Policy • Survey supply chain managers: • What cost factors are considered? • What is the price elasticity of the offshoring/ reshoring decision? • Become the national source of actionable information on the size, motivation, decision processes and industry mix of U.S. offshoring and reshoring.

  31. Suppliers: Maximize the value of proximity: Beat the LLC competitors • Early Involvement. Partner. DFMA • Max. face-time w/customer • Get customer to your facility Show technology, lean, NTMA 6S Program • Respond to phone calls timely • Get customer to buy FOB destination • Provide great customer support • Lean

  32. Suppliers: Maximize the value of proximity:Beat the LLCC competitors • Guarantee delivery • Help solve assembly issues • Guarantee the integrity of supply base • Focus on IP parts • Automate

  33. Recent developments, 1/13 &14 in DC • Council on Competitiveness: • Working on Reshoring • Will cooperate • AFL-CIO: • National Reshoring webinar 1/13 • Will help develop data on Green costs for TCO

  34. 1/13 &14 in DC (continued) • NIST MEP planning: • Webinar for MEPs • Presentation at Annual Conference • Webinar for MEPs and client companies • Will encourage NY state to duplicate IRI • Cong. Wolf (R VA) • HR516 • Chair of Commerce Appropriations subcommittee • Will encourage Commerce/MEPs re Reshoring • Will call me to testify at a House hearing • I encourage you to support HR516

  35. Requests of OEMs Try the TCO Estimator Make sourcing decisions based on TCO, not just price Check our Library to see what your industry is doing Consider how a stronger home market benefits your sales Bring some offshored work to the Fairs Send in cases of reshoring

  36. Requests of Suppliers ●Talk TCO ●Use the Estimator to help customers compare costs Show customers Library articles Send in cases of reshoring

  37. Some Presentations: 1Q 2011 • 1/13 Council on Competitiveness & AFL-CIO, Washington, DC • 1/14 NIST MEP • 1/18 Illinois Reshoring Initiative • 1/20 Mazak Career Days • 1/31 Morey Corp • 2/10 Chicago SME Chapter Webinar • 2/17 Federal Reserve Industrial Roundtable, Chicago • 2/23 Chicago Manufacturing Renaissance Council, Chicago • 2/24 PMA Webinar • 2/24 Amer. Electroplaters, Chicago Metal Finishers and Mid-west Fastener Assoc. • 3/1 MEP Webinar • 3/10 SME Milwaukee Chapter • 3/16 Illinois Reshoring Conference, Palatine, IL • 3/15-18 Mazak Career Days and Open House, Schaumburg, IL • 3/17 Lean Logistics Reshoring Webinar • 3/30 CAPM (ISM) Forum, New Haven, Conn. See www.reshorenow.org for links

  38. Presentations: 2Q – 4Q 2011 • 4/6 AFS Metalcasting Congress, Schaumburg, IL • 4/12 Sescoi Open House, Chicago • 4/12 Go Global, Rockford, IL • 4/13 Amerimold, Chicago • 4/13 Leadership Forum, Rockford, IL • 4/25 MSCI Chicago Chapter, Oakbrook Terrace, IL • 5/4 Assembly Magazine webinar • 5/17 MEP Annual Conference, Orlando, FL • 6/28 Lean Logistics Summit, Cincinnati • 9/8 NTMA/PMA Purchasing Fair • 9/15&16 Lean Accounting Summit, Orlando, FL • 9/22 Salute to Manufacturing, Greenville, SC • 10/5&6 NE Shingo Conf., Springfield, MA • 10/10 Sescoi Open House, Charlotte, NC • 10/24-28 AME Annual Conv., Dallas See www.reshorenow.org for links

  39. For more information, to increase U.S. jobs and help slow the offshoring flood now! Contact: Harry Moser Initiative Founder 847-726-2975 harry.moser@comcast.net Initiative: www.reshorenow.org Competing with/avoiding LLC competitors: http://us.gfac.com/company/careers/swot.cfm

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