Two manufacturing experts discuss the importance of reshoring and domestic sourcing in addressing and helping to prevent supply chain disruptions

FAIRPORT HARBOR, Ohio—The COVID-19 pandemic has spurred a national push to strengthen domestic supply chains, especially with regard to parts and products that are critical to national security and economic competitiveness. For many companies, this means re-evaluating their current supply chains and establishing new relationships with trusted domestic and local sources.

Harry Moser, president of the Reshoring Initiative. (Photo courtesy Reshoring Initiative)

Harry Moser, founder and president of the Reshoring Initiative®, Kildeer, Illinois, recently joined John Stoneback, president of JM Performance Products, Inc., Fairport Harbor, Ohio, to discuss how American manufacturing companies can address and prevent supply chain disruptions, advance their manufacturing productivity, and reskill their workforces. Their discussion is presented below in a Q&A article contributed by John Stoneback. The article has been lightly edited for length, style, and clarity.

John Stoneback, president of JM Performance Products, Inc. (Photo courtesy JMPP)

Q: What are some of the after-effects of the COVID-19 pandemic that U.S. manufacturers can expect going forward?

Moser: From a reshoring perspective, it’s clear that government, consumers, and companies must understand that a global and fractured extended supply chain is not good. Reducing our dependence on foreign countries and corporations for critical technology and products is critical. Quite simply, we need to source more in North America, with the U.S. getting the bulk of it. Without having to worry about geopolitics and the U.S.-China ports (where things can go wrong), the risk comes down dramatically.

Many experts feel that China will begin to voluntarily decouple as a strategic shift, whereby they switch their focus from economic growth to economic control. China is furious because of the U.S. resisting its efforts in the Western Pacific—particularly the protection of Hong Kong and Taiwan. If they are convinced that we’re trying to cut them off from their maritime supply chain, China may announce at some time that no Chinese company will ship to the United States.

They could also mandate their populace to just buy China-based products. This is made more plausible as 40 percent of Chinese [citizens’] income is saved by its populace, versus 3-5 percent  for the U.S.—making it easier for them to replace their dependency on us.

I believe it’s a question of degree, where they may pick the five to 10 things that we need most (such as penicillin, semiconductors, cell phones). If they tried this 20 years ago, it wouldn’t have worked because they needed us more. Now, we need them more as we have nowhere else to go for some of these vital items.

Other geopolitical landscape scenarios exist as well, such as Cuba being positioned to block trade from many areas in and out of the Caribbean. The question is, will Cuba, a target for China, help them financially and militarily to block the U.S.? In many ways, the U.S. is doing the same thing in Taiwan, the Philippines, et cetera. This is a very extreme scenario, but also very possible on a percentage level as I believe these trends will continue.

Stoneback:  From a small manufacturing perspective, we all need to recognize that we are never going to experience pre-Covid-19 “business as usual.” The supply chain disruption has affected every manufacturer, whether they are a small “Mom and Pop” shop or a multi-national entity. We are all being forced to examine our business practices and modify them, so that we can continue to produce our products with better efficiencies while controlling escalating costs.

Everything from buying steel to semiconductors has been affected. Quoting has taken on a new level of difficulty because lead times are no longer predictable or dependable. Add to that the lack of skilled labor available, and the new deficit of people willing to work, and U.S. manufacturers are now playing the game with a whole different set of rules.

The current domestic “hyper-inflation” has to be taken seriously. The cost of everything from food and clothing to fuel and housing has jumped dramatically. The unfortunate reality is that many items are still significantly less expensive if they are imported. The challenge of making every dollar stretch further opens an argument that higher costing domestically produced goods are an extravagance. Changing that mind-set is a necessary but daunting task.

Additionally, we all need to recognize that the demand for higher wages to offset the escalating costs, and devaluation of the dollar is imminent. What effect will this additional layer have on reshoring?  This is a question every business owner, especially manufacturers, needs to examine.

JM Performance Products is staunch about making our products here in the USA from domestic steel, and having to justify our cost over an import is our day-to-day challenge.

The fact of the matter is, we can and do guarantee our quality and performance. If an imported part fails, what is the remedy? A failure of our products—retention knobs—can cause catastrophic damage resulting in production down-time and repairs. It is highly unlikely that a cheap import comes with any sort of guarantee or cost mitigation policy. The reality is that paying more upfront often means saving money down the road; but that is a difficult message to convey.

Q: What is the biggest, most immediate challenge facing domestic manufacturers, post-COVID-19?

Moser: The good news is that the reshoring effort has been on a successful track in bringing back manufacturing jobs to the U.S.—6,000 in 2010, 160,000 in 2020, and 200,000 or more in 2021. This is still not enough growth to reduce the trade deficit and reach the goal of bringing back 500,000 jobs per year. Even if we reached that goal, we wouldn’t have the skilled (and unskilled) workers trained to handle the work at that pace.

Therefore, the biggest challenge, or obstacle, is the skilled workforce. We need to establish recruiting the unskilled and skilled via aggressive apprenticeship programs for beginners, and support college funding to go even further. Lower-level jobs will benefit immediately from apprentice programs, as social recruitment of manufacturing careers is key—with guidance counselors leading the way.

The second biggest challenge is to get the dollar down 20 percent. Also, don’t raise the corporate income tax, as it will dissuade companies from building new manufacturing facilities, et cetera. Moving forward, we also need to adopt a value-added tax credit of 15 percent on every level of the supply chain (including steel) for exports. Today, if a Chinese company ships to the U.S., China gives that company a 15 percent value-added tax credit. We need to do this as well, as it is a critical incentive over and above taxes, duties, and tariffs.

Stoneback:  I agree with Harry. We need to incentivize North American manufacturers while protecting them by leveling the financial playing field. For many small manufacturers, higher corporate income tax will only dilute their efforts to grow and expand. It will also have a negative impact on their workforce.

Q: Where is the global supply chain today in terms of speed of delivery?

 Moser: Delivery time is at least 50 percent longer to get to the U.S., as there is still a good amount of inventory of products stuck on ships and docks. Across the board, there are shortages in distribution centers and stores, and imported products are still the problem for companies waiting for materials to get here. Quite simply, if you use domestic materials and labor, you’ll have fewer issues.

Stoneback:  Many manufacturers fail to recognize that the costs to use imported materials have to include the cost of added time, added transportation, and quite honestly, reduced quality in many instances. Yes, we may have to pay more at first blush, but the cost of buying domestic materials is easily calculated.

Q: What needs to change in the global supply chain moving forward?

Moser: Ultimately, more reshoring and foreign direct investment (FDI) may benefit local firms in the host country through various kinds of spillovers to recognize total cost versus just the price.

I recently participated in a podcast for the AME (Association for Manufacturing Excellence), which is a lean-focused organization that helps manufacturers successfully navigate the post-pandemic economy. We all agreed that just-in-time (JIT) is a lean concept and we do need to get leaner. The problem is that JIT is a problem when you have no inventory and depend on products coming from foreign countries, versus domestic-based.

This still comes down to a sourcing problem, where we need to be leaner by sourcing more locally. If we can overcome that problem—JIT will work just fine.

Stoneback:  Sourcing local[ly] is key. JM Performance Products currently manufactures and stocks over 400 different styles of retention knobs, so JIT local sourcing isn’t an issue for our customers. Additionally, we recently developed coupling bolts for live tooling on Mazak Corporation CNC lathes, which are now available for immediate shipment–eliminating the traditional long lead times for comparable imported coupling bolts for Mazak CNC lathes.

Q: What does the Post-COVID-19 landscape look like for the reshoring effort?

Moser: The current administration’s enhanced efforts are focused on manufacturing essential materials for precarious industries, such as microchips, rare minerals, medicine, and EV batteries. We can’t be dependent on outsourcing [to other countries], so we must boost production at home.

The problem is, for example, we can increase microchip manufacturing capacity, but our chips will be too high-priced to compete. The emerging chip factories must get costs down to have a competitive U.S. market here for all the chips, as they are 20 to 30 percent cheaper to source from overseas. Plus, overseas is also our customer.

Notably, for the second year in a row, reshoring job announcements outpaced FDI—62 percent versus 38 percent (historically very high, but lower than last year’s rate of 70 percent reshoring, 30 percent FDI.)

Q: Moving forward, what are your insights on what should be implemented for domestic manufacturers in the post-COVID-19 era?

Moser: Again, a skilled workforce is the number one priority, plus automation and improving the trade balance are key. Germany is the best example of this, as its trade balance is a surplus of 5 percent of Gross Domestic Product (GDP), whereas the U.S. is at negative 4 percent. Germany also has a better skilled work force, as manufacturing is 21 percent of its employment, and the U.S. is at 9 percent. It is also essential to get the dollar down.

Stoneback:  While I agree with Harry that a skilled workforce is a priority, I also believe that adopting innovative processes that augment the skill level of our work force is key. Taking a hard look at production bottlenecks, and working to simplify processes so that capable—but not necessarily highly skilled—workers can maintain the workflow, should always remain a consideration.

Q: What can the Reshoring Initiative do to help manufacturers with supply chain problems?

Moser: The Reshoring Initiative offers the Total Cost of Ownership (TCO) Estimator®. It’s a free, online software that helps companies make better sourcing decisions about offshore versus  domestic sourcing, and is also used to sell against imports. The tool asks companies to look at what products are causing “pain” via “hidden costs.” They can use the TCO to find the products where the hidden costs are greater than the price gap. (http://www.reshorenow.org/tco-estimator/)

We also offer the Import Substitution Program (ISP), where companies can identify the right products to make, and it qualifies the biggest importers of their product. The ISP was created to convince and facilitate importing companies to produce or source more domestically. Customized versions of ISP are available for U.S. manufacturing companies, technology suppliers, and trade associations.

These are unique tools that can become an important part of any sales, marketing, or economic development effort to make smarter sales decisions. Ultimately, lots of jobs are coming back (maybe 20 percent), so this could increase U.S. manufacturing by 30 percent. If [data for] the second half of 2021 progresses at the same rate as the first half of 2021, reshoring and FDI job announcements for 2021 are projected to be over 220,000. That’s 38 percent above an excellent 2020 and, by far, the highest yearly number recorded to date.

Given these statistics, and  using these tools to do the math and figure it out, manufacturers should have confidence moving forward that it can be done, so we can then actively hire and train more workers and build more factories.

About JMPP and the Reshoring Initiative

JM Performance Products, Inc., is a manufacturing innovator of CNC mill spindle optimization products. The company’s patented High Torque Retention Knobs are reported to overcome a critical design flaw inherent in CNC v-flange tooling that is said to be responsible for costly CNC milling and boring issues that affect production time and tooling.

The Reshoring Initiative is a nonprofit organization that is actively working toward its goal to bring 5 million manufacturing jobs back to the United States. It does so by helping manufacturers realize that local production, in some cases, reduces their total cost of ownership of purchased parts and tooling. The Reshoring Initiative also trains suppliers in how to effectively meet the needs of their local customers—giving suppliers the tools to sell against lower priced offshore competitors.

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