Total cost of ownership is the single most important reason why you might want to reshore your operations, says Harry Moser, founder and president of the Reshoring Initiative.
The total cost of ownership, or TCO, is the simplest measure to consider when determining whether to return offshore operations to the United States. “By definition, TCO is total,” says Moser. “It includes everything you could think about.” However, many companies focus largely on the lower cost to manufacture in places such as China or Vietnam. That’s a mistake, in Moser’s view.
His non-profit, the Reshoring Initiative, offers a free TCO estimator that can quickly calculate costs. He stresses that the tool employs the user’s data. And in most cases, the U.S. was a cheaper alternative to overseas manufacturing.
Since the Initiative’s founding in 2010, there has been a non-stop uptick in the number of jobs attributed to companies reshoring and foreign direct investment. There were 6,000 such jobs in 2010; that figure rose to 160,000 in 2020, and 2021 should see an increase of another 20,000.
Moser recognizes that there’s an argument for offshoring in certain instances. “We’re always talking about product that's going to be sold in the U.S. or North America. If you're going to sell in China or India, make it in China or India.”
In addition, if one’s product is highly labor-intensive, the process can’t be automated, and demand is constant because there’s no cyclicality or seasonality, it makes sense to manufacture overseas.
Once one decides to return operations to North America, “leanshore” things. “Don’t put it in the same old factory with the same crew in the same machines and do it in the same fashion. Get new equipment, train the people better, and apply lean principles so you have good flow through the factory. If you leanshore, in many cases it will make sense to bring it back.”
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