A key player in President Barack Obama’s reform, Harry Moser explains the move toward reshoring.
The Strategic Forum on innovative manufacturing, hosted by the Chamber and Investissement Québec on April 7, 2017, brought together many important industry players to accelerate innovation in manufacturing, maintaining Québec’s economic vitality.
During the forum, Harry Moser, president and founder of Reshoring Initiative, presented the U.S. revitalization policy for the manufacturing industry. What are some of the lessons for Québec?
What is reshoring?
The term “reshoring” was establishedby Harry Moser in 2010 in opposition to the term “offshoring.” It refers to companies repatriating production and sourcing activities after realizing that production in low-labor-cost countries is not necessarily as profitable as originally thought.
To promote the benefits of reshoring and give companies the tools to help them in their administrative, legal and tax efforts, Harry Moser created the non-profit organization Reshoring Initiative.
Why should Quebec encourage reshoring?
The U.S., like a lot of Western nations, has been offshoring production over the past 40 years to places with low labour costs, such as Asia and Mexico.
The main goal of reshoring is to bring manufacturing jobs back to their country of origin and reduce local unemployment.
What are the benefits of reshoring?
Reshoring reduces imports, which reduces the trade deficit.
In the U.S., eliminating the trade deficit – an annual $500 billion – will create 3 to 4 million direct jobs, particularly high-value-added ones, and around 10 million indirect jobs in the manufacturing sector.
Modernizing production equipment that accompanies the reshoring effort ensures better control of manufacturing processes, improved quality of products and more skilled labour.
Reshoring also means reducing income inequality, slicing the budget deficit in half and limiting the industry’s environmental impact.
Why do businesses reshore production?
To increase profitability by reducing their Total Cost. Local sourcing reduces inventory, shipping, warranty and lost orders due to stock-outs. Having manufacturing near engineering and the market improves innovation.
How do businesses reshore production?
“Innovation is essential to reshoring’s success,” Harry Moser says.
He believes that reshoring promotes innovation in products and processes, by re-establishing the connection between engineering and R&D and manufacturing.
But for reshoring to be profitable in a high-wage country, production equipment needs to be modernized, which is to say computerized and robotized, to keep the labour content low enough in the overall cost of manufacturing. In other words, automating production can result in competitive salaries for employees.
Finally, in some cases, thanks to innovations in the decision-making process in terms of the selection of suppliers, the total cost of procurement on Western markets can be lower if production is done in the same country. Importing from a country with lower wages is not necessarily the most profitable choice.
What advice do you have for companies that want to reshore production?
First, companies need to assess the profitability of repatriating production, Moser explains. They need to study repatriating their facilities, as well as their supply chain.
“To start with, train companies to use total cost instead of wage rate or price when making sourcing or location decisions.” With this simple measure, around a quarter of foreign production can be repatriated. The free online Total Cost of Ownership Estimator® can be easily adapted to the Canadian dollar and metric.
It is also important to plan the transition in detail, to anticipate a potentially difficult withdrawal from the country where production is currently located, to build a local supply chain and to ensure the availability of skilled labour.
The following is the evaluation process Harry Moser recommends for companies that are thinking of reshoring their production activities:
- Target imports that cause pain
- Use TCO (Total Cost of Operation) to evaluate:
- 1st Keep existing domestic sources
- 2nd Shift outsourcing back
- 3rd Repurpose offshore own-facility to serve the offshore market. Incrementally invest domestically to serve domestic market.
- 4th Shut offshore own facility. Build new domestic facility.
- If Canada is best or close build here /4.0/trainings
- If Canada high by 5 – 20%, delay.
- If high by ≥20% nearshore or offshore.
How can Québec manufacturers benefit from this trend?
Harry Moser encourages Québec companies to cooperate with U.S. and Mexican companies to repatriate work from China. To maintain labour quality, they should keep investing in training and skills improvement (apprenticeship programs, certificates, etc.).
He also points out that leading-edge manufacturing increases benefits for developed countries: less time spent per item manufactured, shorter phases between supplying parts, product assembly and delivery, and a narrower wage gap for highly skilled jobs.
Harry Moser summarized “Investissement Quebec has a plan to bring jobs back. Quebec has the skills to play a key role in the reshoring of production to N. America. The lower Canadian dollar makes Canada especially competitive now. I look forward to helping Quebec achieve its reshoring potential.”