By using lean principles and total-cost-of-ownership analysis, it makes more sense -- and cents -- to bring jobs back to America, experts say.
The same strategies that are helping U.S. manufacturers cut costs and root out quality issues earlier and earlier in the product lifecycle can help bring offshore jobs back to America.
The key, according to two experts who spoke at the 26th annual International Forum on Design for Manufacture and Assembly (DFMA) in Warwick, R.I., is recognizing the hidden costs of offshoring and embracing "upfront engineering" as a business model for innovation and profit creation.
"Traditional corporate and enterprise accounting systems do not generate total-cost-of-ownership (TCO) data for companies locating or sourcing overseas in search of the lowest labor cost," asserted Harry Moser, founder of the Reshoring Initiative and retired president of Agie Charmilles LLC.
When total cost of ownership is calculated, Moser said, most companies discover that they have saved closer to 10% -- rather than the 30% or 40% that they initially thought -- by offshoring.
"When TCO analysis is combined with DFMA product redesign and lean manufacturing programs, we're learning that the gap can close or disappear today -- and will definitely close in the next few years," Moser added.
The Reshoring Initiative offers free software and an online library of 98 articles to help companies construct a clearer view of the competitive landscape between the United States and so-called low-cost countries.
Shifting the Playing Field
Updating a study that he co-authored in 2004, product consultant Dave Meeker asserted that the problem of not accounting for total cost of ownership continues today.
"Labor is the common metric businesses pick in deciding to take production overseas. Yet, the largest slice of the cost pie is not really the labor content but the material and manufacturing process choices engineers make," Meeker said.
"Then, as well as now, redesigns using DFMA show that assembly labor can be reduced an average of 45% while creating better functional designs.
"Add a very conservative 24% to offshored product costs to cover logistics, supply chain management and other expenses, and the playing field begins to shift."
Based on the evidence, "we can start to engineer our way out of the offshoring problem by streamlining designs and understanding the real costs," Meeker added.
Staying Onshore with DFMA
DFMA software guides engineers to assess the structural efficiency of their products and then reduce the assembly cost by consolidating individual parts into elegant, multifunctional designs.
Product development teams can examine competing materials and processes and quantitatively judge the cost trade-offs of producing new designs or improving existing products.
"Upfront engineering, or early analysis, is a fundamental idea used more and more as a business approach by leading manufacturers," said John Gilligan, president of Boothroyd Dewhurst Inc., which produces the DFMA Forum. "Companies at the DFMA Forum found significant savings in product cycle times and total costs by tackling design issues earlier in development."
ITT Aerospace Controls, for example, reported 76% cost avoidance for a butterfly-valve redesign and a threefold increase in factory throughput, according to Boothroyd Dewhurst.
"The best-performing and highest-quality products are always less labor intensive to assemble," Gilligan said. "When all the costs of doing business are considered, DFMA can help companies stay onshore by helping engineers design products that are cost-effective to build anywhere, without chasing the lowest offshore labor rate."