reshoring

Chinese Manufacturers Ask: ‘How Can Americans Still Afford to Buy from Us?’

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Excellent write up repeating the pitfalls from basing decisions on ‘piece-price’ and failing to factor actual total cost of ownership – with some perspective from the international business community laughing at how North Americans miss this.  It doesn’t seem to matter how often this is communicated, CFO’s and purchasing managers keep using inaccurate costs to base decisions on.  However now that shipping costs are 10x higher, finance/accounting, purchasing will incur a greater loss for missing this – learn to calculate your total cost of ownership.

Key points from article:   

“The cost benefit to manufacturing in China just isn’t there anymore.”

 

“in the U.S., purchasing organizations are primarily fixed on obtaining the lowest “piece-price,” pretty much regardless of other factors.

When asked “why,” I responded that reduction in material was the primary metric used to judge and reward purchasing managers.

I was then again asked, “why?” My response was that material variance is a primary focus when U.S. corporate CFOs report their quarterly financial results to stock analysts where, by the way, total cost is seldom—if ever—mentioned.

I had to explain this several times, as most of the attendees were incredulous to the fact.”

 

“Most suppliers are geographically close to their customers” – *a JIT practice – “and so are more closely integrated with them than their western counterparts.”

“Total cost,” not “piece-price” is what is measured.

 

“Despite most of the attending companies having current or past business relations with American customers, most were completely unaware of how Americans viewed performance in its purchasing function.

It didn’t make sense to them, but did generate a few laughs”

“if honest total cost metrics are employed, the cost benefit to sourcing in China just isn’t there anymore.”

 article link: https://www.industryweek.com/supply-chain/supply-chain-initiative/article/21176987/chinese-manufacturers-are-wondering-how-can-americans-still-afford-to-buy-from-us

Harry Moser, Reshoring Initiative CEO, set up a total cost calculator CFO's can use to learn their Total Cost of Ownership Estimator available here https://www.reshorenow.org/tco-estimator

 

I’ve used this to calculate actual cost comparisons at more than one company and it typically is more economical to source locally – which also reduces sourcing from region typically supplying product high in defects, which increases lead times when you have to reorder to replace defective stock and let the customer know you won’t be on time.  Local sourcing also reduces distance & associated lead times, a direct driver of sales and bottom line results.

 *I can't recall a business that knew their actual cost of offshoring, do you know yours?

Why Donald Trump Is Wrong About Manufacturing Jobs and China


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“U.S. Factory jobs are on the rise here, and many of these new jobs are coming back to North America from China, which is struggling to maintain its manufacturing capacity. Since March, 2010, when manufacturing employment in the U.S. hit a trough of 11.45 million jobs, nearly a million new factory positions have been created, most of them in the Southern states, particularly North Carolina, South Carolina, and Tennessee… across that same 5 year period, average hourly manufacturing wages have increased >10%”

“open manufacturing positions in China have been dropping consistently since 2012, down nearly 6% in that time. In January, the country’s Ministry of Commerce reported that factory activity has contracted for 6 months, falling to a 3 year low. In addition, foreign direct investment in Chinese manufacturing was flat for all of 2015, while China’s balance of trade with the U.S. barely budged, despite the strong dollar. Moreover, China’s exports tumbled in February by 25%, after falling 11% in January.”

“the decision to manufacture in the U.S. isn’t solely about dollars and cents. Rather, it’s a function of the quality of the U.S. workforce—its noteworthy productivity and its easy familiarity with lean-factory principles—as well as the need for companies to react quickly to changes in domestic consumer demand.”

several more stats in article, see here:

https://www.newyorker.com/business/currency/why-donald-trump-is-wrong-about-manufacturing-jobs-and-china