How Lean and Reshoring work together creating better outcomes.
In a 2013 survey of US executives audit, tax, and advisory firm Grant Thornton found that more than one-third of US businesses would move goods and services production back to the US in 2014. While an earlier survey by ThomasNet in 2012 found 95 percent of manufacturers planning to buy more domestically.
Australian business leaders recognising a resurgence in US manufacturing by 2010, formed the Australian Advanced Manufacturing Council to advance Australia’s world class potential in high value manufacturing. Dow Chemicals and a dozen other organisations became founding members. Andrew Liveris, global CEO of Dow pointed to significant growth in manufacturing jobs in the US and the role of reshoring, saying “Australia can benefit from this country’s highly skilled and trained workforce, like Germany and Singapore, and be as competitive as the US on input costs. Australia has the ingredients for a dynamic advanced manufacturing economy – we just need to foster the right environment.”
Reshoring ... what shoring? ... and what is it?
Offshoring, reshoring, right-shoring, or you might hear mention of ... onshoring, nearshoring, homeshoring, backshoring, insourcing, repatriating manufacturing, or even botshoring which combines the notion of automation with a business moving location.
Reshoring or onshoring brings a business back to its home town or country of origin, while nearshoring locates operations within the region or in a neighbouring country.
It is really a decision about where to locate business operations; locally, regionally, or internationally. Choosing the best model for a business involves deciding not only where you will operate but also how you will operate.
Speaking on behalf of the Reshoring Initiative at a Lean Accounting Summit in San Antonio, Texas, Michele Nash-Hoff listed the main advantages of reshoring as:
Faster lead times - 49-50% reduction
Delivery accuracy - 30-40% improved
Unforeseen disruptions - companies can respond swiftly
Volatile demand - closer proximity increases agility
Competitiveness - better at serving local markets while maintaining low costs
Walmart is a supporter of reshoring. Committing to increasing its U.S. purchases by $50 billion annually by January 2023. Within two years Walmart’s support created more than 4,500 U.S. manufacturing jobs with more than 40 of their suppliers.
Professional hairdressing equipment manufacturer Farouk System’s expanded their operations in Texas rather than expanding overseas in response to concerns about counterfeiting of parts, costs, and production problems. Creating 400 jobs in the US and increasing efficiency, with the results far outweighing the marginally higher cost of labour in the US.
UK automotive supplier Stadco reports manufacturers like Jaguar Land Rover increasingly turn to them and other local suppliers. Stadco’s robust lean manufacturing operation and ability to respond to supply requests within hours is outperforming foreign competitors, who are unable to match their high quality and timely supply.
Reshoring in Australia
Henry Zhou, general manager for Omron Electronics Australia expected more on-shoring in 2017 when contemplating the year ahead for Industry Update, writing “With the growth in robotics and 3D printing in Australian manufacturing plants labour costs are becoming less important in manufacturing. It’s now more important to be close to customers and close to the source of raw materials.”
Zhou is not alone among Australian executives who are looking beyond unit costs for a competitive advantage.
Meeting Australian market needs onshore
Even while the Australian car manufacturing industry was passing into history, Iveco was increasing their Australian manufacturing activity, successfully producing a new truck model in Dandenong, Victoria. Locally sourcing components including mirrors, batteries, wheels, liquids, wheel angles and trailer connectors, as well as investing in new tooling and technology. By manufacturing locally Iveco can give customers more customisation options and achieve faster turnaround.
In Brisbane, Jack Winson, CEO of Signet observed customers increasingly wanting shorter wait times and smaller production runs of the packaging and plastic films the company produces. Finding off-shore options inadequate and investing in a $2 million Italian-made Macchi machine to triple their domestic production Signet is taking advantage of being able to turn around jobs in a few days.
Mr Winson said the new capability was drawing significant interest from customers. “Manufacturing here in Brisbane means we have control, ensuring a consistently high-quality product that meets our clients’ needs, and the flexibility to ensure we can meet the most challenging deadlines.”
Innovation and production onshore
Evolve Group’s Managing Director Ty Hermans says, “It’s very frustrating every time a project is taken offshore before considering getting a local manufacturer to quote on the work.”
Partnering with inventors and businesses, Evolve specialises in turning product ideas and inventions into commercialised products. Their product design and development, manufacturing, and distribution has resulted in exports to more than 128 countries around the world and awards for product design.
“We are actually re-shoring jobs that went to China years ago as we demonstrate the many benefits of working with a local supplier that extend far beyond just cheaper part costs,” says Hermans. Lean manufacturing principles, robotics and automation services underpin Evolve’s ability compete and win reshoring business.
Dulux demonstrated how a commitment to onshore operations can help a business take an efficient leap forward. Building a new factory in Victoria to replace older operations interstate, the high levels of automation, changes in staff roles, and improvements in the service they could offer customers, puts them at the leading edge of paint manufacturing. (Detailed in our earlier blog: How Industry 4.0 is progressing in Australian businesses.)
GE improves production reshoring from China to Kentucky
When Jeff Immelt succeeded Jack Welch as CEO, GE added Lean to its business practices alongside its established commitment to Six Sigma. Immelt also set about making IT the backbone of the business, anticipating the dramatic influence it would have on manufacturing in future and its fortuitous combination with Lean manufacturing.
Lean at GE means making opportunities to improve the process or respond to changes in the market as quickly as possible by locating all the functions associated with manufacturing from product development to quality control on the same site. This is Lean thinking which aligns with the benefits of onshoring or reshoring.
At Appliance Park in Louisville, $800m was invested in redesigning all the product lines, the way in which GE manufactures, and a data centre to help drive efficiency, productivity, and quality.
In Harvard Business Review Immelt writes “By revamping what was a 25-year-old dishwasher line, the Appliance Park team has reduced the time to produce by 68% and the space required by more than 80%. While the focus remains on creating the best designs and the highest quality, everything leads to the intended cost-cutting by-product of reducing waste.”
Reshoring operations from China has reduced GE’s costs, increased cash flow and created more than 4,000 jobs in their own U.S. operations and 18,000 jobs in their U.S. based suppliers.
Immelt says of reversing course and investing heavily in renewing American manufacturing operations, “we can bring manufacturing back to the United States and be profitable.”
Disrupting electronics manufacturing in North America
In Canada, electronic manufacturing services provider SigmaPoint is disrupting its industry to the extent that it’s bringing business back onshore.
Breaking the mould of traditional manufacturing and supply chain industries they do everything from designing to prototyping, low to high volume, under one roof and are dedicated to Lean manufacturing. They argue that offshoring for lower labour rates just translates into paying less for the waste in your processes.
SigmaPoint eliminates waste to bring costs down. Lean coaches who are expert in the use of tools for continuous improvement work with their teams, developing their ability to bridge the gap between the current and future states the company wants to achieve.
“As a result, our management has raised the level of what we expect from them, which is not only to push the product out every day, but to ensure we know how to troubleshoot the gap,” says Stephane Dubreuil, Vice President of Operations and Lean Enterprise Solutions.
SigmaPoint ask why wouldn’t their customers reshore? North American technology companies can manufacture nearby with exceptional quality and very agile and flexible strategies, while bringing costs down.
Reshoring the lean way
Reshoring has been prompted by changing cost factors and the realisation that distance can impede efficiency. Moving the location of business operations is always challenging but does offer many opportunities to apply Lean principles, increasing operational efficiency in the new location:
Reducing the length of the supply chain between production and customers
Less inventory in the supply chain, less handling, less storage facilities
Faster movement through the supply chain, faster delivery
Removing time differences, speeding up communication and problem resolution
Improving environmental factors with less product miles, better controls, and infrastructure for managing by-products and waste
Upgrading processes, combining moving to new facilities with
Investment in robotics, automation, or other capital equipment
Training and re-organisation of the workforce
Reducing waste in the processes
Whether offshoring operations or being onshore is best will really depend on individual business circumstances and capabilities.
“It all depends on what the customers are looking for, whether responsiveness is critical. If they need to get a product to market quickly, onshore manufacturing is the only way,” says Jack Winson, CEO at Signet, but he cautions that movements in the dollar make planning and investment for bringing production onshore quite challenging.