Manufacturers Take a Global Approach to Reshoring Decisions

By: Steve Minter, IndustryWeek

Leaders from NCR and Jarden offer insights at the IW Best Plants conference into why manufacturing operations were brought back to the U.S.

Though it has been heralded for a significant U.S. reshoring action, that decision fit firmly in NCR’s commitment to a global structure to serve its markets, Rick Marquardt, senior vice president of global operations, told attendees at the IndustryWeek Best Plants Conference in Greenville, S.C.

Marquardt joined Patricia Gaglione, senior vice president of Business Operations and Supply Chain at Jarden Corp., to share their experiences with reshoring in an executive panel moderated by Harry Moser, founder and president of the Reshoring Initiative

When Marquardt joined NCR in 2006, he had toured the company’s facilities, found them antiquated and decided it would be best to sell them and outsource production. He closed factories in Scotland, Brazil, Canada and Dallas. He decided to improve the facilities in China so that they could be sold. However, he hired new managers for the plants and told them that if they could improve productivity, he would keep them open. At the same time, he outsourced a large amount of work to a contract manufacturer.

“After two years, my internal plants were beating them so handily in costs, speed and delivery that we decided to bring it all back in,” said Marquardt.

In 2009, NCR decided to produce ATMs at a new facility in Columbus, Ga. Marquardt recalled that he had been on a whirlwind tour of possible sites when he landed in Columbus. Unlike the indifferent reception he had received in some other cities, Columbus officials pulled out all the stops to impress him. He was met by the mayor and the chamber of commerce, as well as representatives from three companies that had already relocated to Columbus and from Duke Energy. Within 15 minutes, the site that had been last on his list had convinced him to locate there.

Since it opened, the Columbus facility has grown to 600 employees and NCR has opened two more sites in Columbus. The plant enables NCR to serve its U.S. core customers – big box retailers and banks – with innovative products that it can deliver quickly. Some of these products can weigh up to 3,000 pounds so proximity to customers is an important factor.

Marquardt says he makes a yearly assessment of NCR’s manufacturing locations and how they fit in the company’s strategy. The competitive environment offers plenty of challenges for its facilities.

“It is reinventing the way we manufacture in the U.S.,” says Marquardt. “I told the plant manager the day I hired him, he can’t just be best in class. If he is best in class, I’ll shut him down and move to China. We need to be next in class.” He said plant management and employees have taken on the challenge.

When they made the decision to build the Columbus plant, he recalled, people called him and said NCR was crazy to build it. Today, he said, the plant is “one of the best, if not the best performing plant in the whole system.”

Changing Economic Factors Prompt Jarden Move

Jarden Corp. produces more than 100 consumer product brands around the world. Its products range from Mr. Coffee coffeemakers to K2 skis to Bicycle playing cards. It even produces the blank die for the U.S. penny. The company has approximately 60 plants in 30 countries, including 20 plants in the U.S.

Jarden has grown rapidly through acquisitions from a $400 million firm 12 years ago to a $7 billion public company today, Patricia Gaglione told the Best Plants audience.

As the company has acquired firms, an important task has been assessing the manufacturing assets so that it can determine how best to integrate them into Jarden’s network, establish Jarden cultural and operating norms and make the best use of the additional capacity.

Some of the companies Jarden has acquired had established factories in China. Those companies had moved their manufacturing there to take advantage of low-cost labor. While those decision may have made sense 15 years ago, Gaglione noted, the plants were not efficient and well-run.

Three years ago, one of the local villages in China with Jarden’s two biggest factories told the company they needed to move their facilities. Southern China was developing its economy and officials said they wanted to reduce the presence of such manufacturing operations. Jarden executives were faced with deciding where to move and how to do it in a way that did not interrupt manufacturing for its customers, retailers such as Wal-Mart and Target.

“Getting set up to operate in China and protect intellectual property” in China is hard, Gaglione said, but finding a way to exit gracefully can be even harder.

The reasons for moving to China had changed since those plants were built, Gaglione noted. Materials costs were on par globally and differences in labor costs were narrowing. More important factors to consider now, she said, were time to market, innovation and shortening the supply chain.

Jarden found that it had capacity in its network of plants and was able to move four major product lines to facilities in the U.S. and Mexico. Utilizing lean manufacturing techniques, the company has been able to increase its capacity utilization rates in those facilities and take advantage of existing infrastructure.

Gaglione told the Best Plants audience the moves have not been without challenges. For instance, the company had more difficulty than anticipated finding workers with the right skills to handle two of the lines that were brought back to Minnesota facilities.

Getting Reshoring Past Par

Harry Moser of the Reshoring Initiative estimated that 50,000 manufacturing jobs have been brought back to the U.S. since January 2010. However, he said about the same number of manufacturing jobs are leaving the country per year as being created. The challenge, he said, is to find ways to move manufacturing past parity.

Moser said manufacturers are reshoring primarily to be more economically sustainable, rather than out of patriotism. It makes sense for manufacturers in many cases to serve the U.S. market from domestic plants. While he prefers operations coming to U.S. facilities, Moser said companies that have work with very high labor content may do those operations in Mexico or Costa Rica and then have a U.S. team that handles the high-tech work.

“From the U.S. perspective, it is better to be part of the winning team than all of the losing team, which is what will happen if the work stays offshore,” says Moser.

Companies in the past often offshored work because they failed to take a comprehensive look at their manufacturing costs, he said. As a result, they frequently missed about 20% of the cost of offshore production.

Now, he noted, labor costs in China have soared in recent years. He cited a study by Boston Consulting Group that net labor costs in China and the U.S. should converge by around 2015. As a result, U.S. firms may want to start preparing to bring work back to the U.S.

Understanding total costs helps companies better justify when the investment in lean methodologies, technology and training will help them be competitive manufacturing in the U.S. rather than sourcing to China, Moser said.

“If you did total costs and there is only a 5% or 10% difference, rather than a 30 or 40% difference,” said Moser, then the return on investment from investing in lean manufacturing “is dramatically higher.”

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