The United States and its North American neighbors are battling a global war on the COVID-19 pandemic that has revealed the downside of offshored supply chains. For decades, companies have been shifting production offshore, negatively impacting U.S. manufacturing capabilities, jobs and the environment through higher carbon emissions and other pollution from China and other developing countries and from long distance transport. The disruptions from the COVID-19 pandemic have exposed our overdependence on imports and underscored the need to shorten supply chains to reduce risk and increase resiliency.
While the United States remains a global leader in the creation of new products, drugs and medical supplies, much of the manufacturing capabilities have moved offshore. The time has come to launch a manufacturing renaissance to revitalize domestic supply chains and advanced manufacturing capabilities.
The practice of unconditionally offshoring manufacturing to save money has changed with the pandemic economy. Even prior to the pandemic, sourcing costs in China were rising. Companies are discovering that when they analyze the total cost of offshoring, it often makes more economic sense to keep supply chains local.
Total Cost of Ownership (TCO) analysis reveals that reshoring can reduce costs while making supply chains more resilient. Harry Moser, founder and CEO of the Reshoring Initiative, has been educating manufacturers on the benefits of “local for local” production. To make informed business decisions companies should consider using the Total Cost of Ownership Estimator® (TCOE) to objectively quantify, forecast and minimize total cost.
Reshoring focuses on quantifying the hidden costs and risks associated with offshoring, typically 15 to 25 percent of the ex works price. By adopting LeanShoring™ practices, organizations can reduce domestic manufacturing cost by eliminating waste in their current processes – including anything that does not provide value to the end customer – while driving an enterprise wide continuous improvement process. The key to LeanShoring™ is doing a total cost analysis and then using lean practices – as opposed to using the same wasteful practices that allowed the work to be offshored in the first place. If LeanShoring™ can produce an additional 10 percent savings, 40 percent of what is now offshored can be reshored profitably, or up to 50 percent when President Trump’s tariffs are applied.
To help businesses become more competitive the Association for Manufacturing Excellence (AME) has a network of North American consortia, which are clusters of local companies that collaborate for broad, deep, accelerated lean and continuous improvement processes that are better, faster, cheaper and easier than what they can do alone. These dynamic practitioner-to-practitioner networks are designed to support small- and mid-size companies so they can sustain and refine their continuous improvement journey.
Sen. Marsha Blackburn (R-Tenn.) and Sen. Tom Cotton (R-Ark.) echoed fears from experts that America is too dependent on China to produce crucial medicine and said the COVID-19 pandemic has threatened critical supply chains.
“We need to end Chinese control over our health and wellness in this pharmaceutical supply chain,” Blackburn said on the floor of the U.S. Senate, calling for an increase in domestic production.
The Way Forward
As a strategy, more companies are shortening their supply chain, which reduces cost, risk and delivery times. By working together with AME, their actions will provide companies and their communities with a distinct competitive advantage; together they can boost their productivity and improve their sustainable resilience in this fast-changing competitive world.
Moser and the Reshoring Initiative are collaborating with AME to promote LeanShoring™ as part of AME’s manufacturing renaissance initiative.
“We are committed to changing the sourcing paradigm from ‘offshored is cheaper’ to ‘local reduces the total cost of ownership’,” said Moser.
AME and its alliance partners are working together to help organizations reduce operational wastes and supply chain disruptions, and to reskill their workforces to improve and better compete and win on the world stage.
Kim Humphrey is president & CEO of AME.