By Alex Lawton
Decades ago, many U.S. manufacturers moved production to China, Mexico and other countries with lower wages as a way to reduce their component and assembly costs. Today, the pendulum is swinging in the other direction, and we’re seeing a boom in “right-shoring” – castings and assemblies designed for or moving back to U.S. production.
What’s driving this trend?
First and most obvious, the wage gap between the U.S and those countries has narrowed. In addition, currency changes have increased the cost of castings to the point where smart manufacturers must rethink the advantages and disadvantages of overseas sourcing.
Increasingly, the best manufacturers are adopting a holistic, balanced scorecard approach to cost-effectively source their castings. These more complex analyses consider a myriad of factors, including:
- Slower communication between the management and production teams, due to language and time differences,
- Inventory, because you need to fill up a boat with castings before it can sail,
- Shipping delays, logistics and freight costs
- Extra red tape and inspections
- The challenges of maintaining component quality over time
- Potential supply chain shocks or disruptions from natural disasters or political unrest
- Currency fluctuations
- No rule of law
- No intellectual property protection
One of the biggest costs is also the most intangible: The continuity of a long-term supplier-manufacturer relationship. When you’re both located on the same continent, it’s easier to develop a close partnership. When problems occur, you can troubleshoot them faster, because of proximity and a high level of shared trust. Conversely, working through casting issues with an overseas partner can be difficult and time consuming, especially when there’s a language barrier.
Each manufacturer must develop its own scorecard for weighing each of these factors. One popular model for doing so is the Total Cost of Ownership model promoted by the American Foundry Society (AFS). It provides a comprehensive list of factors that manufacturers must consider when sourcing castings. It’s an excellent framework you can use to collect and analyze your own data – and ultimately make better-informed decisions.
As I have analyzed world-class manufacturers in many industries, the ones that have been most successful in managing their global supply chains tend to use a more elegant, detailed analysis, such as the balanced scorecard. Those who are only concerned about sourcing the lowest-cost castings aren’t leaders in their industries.
There is no in-between. You get what you pay for. Cheap castings will cause you nothing but problems. Ultimately, your reputation as a manufacturer will suffer.
If you’re struggling with casting sourcing decisions, I urge you to take the high road. Invest the time and effort to consider all of the direct and indirect costs of domestic versus overseas sourcing.