Why Commodity-Buying Manufacturers Should Follow Apple Inc’s Lead

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headshot of harry moser with glassesHarry Moser, founder of the Reshoring Initiative – and a featured speaker at our upcoming conference, Commodity/PROcurement EDGE – is arguably one of industry’s leading voices in reshoring intelligence.

We caught up with him recently to give you a taste of what he’ll be covering in October.

MetalMiner: What are the key developments, if any, on the reshoring front in the last year or so?

Harry Moser: Reshoring is increasing in amount and breadth of industry. The most notable examples have been in high-end consumer electronics, a sector long thought lost. Examples include, Apple, Motorola, Foxconn and Lenovo. The rate of media coverage also continues to rise. We now see several articles a day on the subject. This coverage is important to continued success since most companies that have offshored need to make major changes in culture and decision processes. The best motivator is to see other major companies reshore. The bulk of the jobs appear to be in products that have substantial freight cost and probably never should have been offshored. Think appliances and machinery. The toughest cases are probably apparel and furniture. Even here, there are early signs of reshoring.

MM: The often-referenced BCG study from February 2012 noted that 37 percent of U.S. manufacturers with sales above $1 billion said they were considering shifting some production from China to the United States, and of those with sales above $10 billion, 48% were considering reshoring. But what if you’re a small-to-medium-sized manufacturer who thinks that maybe they don’t have the resources to undertake reshoring – what would you say to them?

HM: First, most small and medium enterprises (SMEs) have not significantly offshored. Most of them are contract manufacturers who probably, in aggregate, ship 98% of output from US or North American plants with 95% going to US or North American customers. Most small OEMs did not try to sell significantly into Asia and thus did not have the strategic motivation to build factories there. Many SMEs, both OEMs and contract manufacturers, have outsourced components, castings, tooling, etc. from Asia. The resources to reshore outsourcing are not large; in fact, they will spend less time and travel expense auditing domestic suppliers than Asian. I have seen some companies transition expenditures on tooling, for example. Existing tooling stays in Asia since it might not meet US standards. Tooling for new products is sourced here and stays here. SMEs also use our TCO Estimator, our data, articles and webinars as sales tools to motivate their customers to think in terms of TCO instead of just price.

MM: You could definitely be titled the Evangelist-in-Chief for Total Cost of Ownership (TCO) and how to use it in sourcing decisions. In a nutshell, why should TCO be a priority for a commodity-buying organization to consider?

HM: Considering all relevant costs, risks and opportunities should be part of all decision processes for all companies all the time. The Reshoring Initiative’s TCO Estimator is the free tool for making sourcing decisions, comparing offshore and domestic sources. The tool is most relevant to products, components, tooling, etc., purchased and shipped from offshore to the company. If imported material is stocked and shipped from a local warehouse, some of the cost factors are already included in the price. So, if the company’s actually buying a commodity, such as steel from a local distributor, then TCO brings less value than for customized products shipped directly from offshore.

Harry will speak on Day 2, Weds., Oct. 9. Check out the full agenda here!

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