What is Offshoring and Why Offshore?
A company is defined as any trade or business in which goods or services are sold to produce income, and many companies have sought to gain a competitive cost advantage through offshoring – moving the manufacturing of their goods or services overseas.
We’ve heard how very inexpensive it can be to manufacture in Asia as compared to doing so in the United States, and we can sympathize with the ensuing battle cries:
- “They have an unfair advantage and are taking our jobs away! There aren’t rules or regulations there!”
- “They have so many people, and they’ll work for nothing – they pay their people peanuts!”
- “The government subsidizes their equipment, but we have to pay full price for ours!”
- “They’ll knock off your product and steal your intellectual property! They’ll make two of everything – one for you and one for themselves!”
I can’t say any of the statements above do not occur and are patently false; on the contrary, my friend’s experience while stationed in China for business comes to mind. Tired of the risk involved with eating the local cuisine, he craved something simple and safe – a peanut butter sandwich and he found what he needed after a visit to the local market, or at least he thought he did. The peanut butter jar he bought was identical to the name brand from back home with one small exception – it was missing a letter. He had purchased a jar of SKIPY (Yes, the label had only one ‘P’).
What are the Pitfalls with Offshoring?
Often times the expected gains from offshoring end up overshadowed by the sum of numerous unexpected hidden costs. Anticipated margin improvements are eroded by these additional expenses, often leading to losses instead of gains. An accurate understanding of a program’s true total cost of ownership is often not realized until it is too late.
The political uncertainty in our ever-changing global business environment has further affected the business situation. Lead times are longer than ever, and supply chain disruptions due to a lack of materials and labor are prevalent. With the skyrocketing freight costs and much more, there may be no better time in recent history than today to reshore your business.
What is Reshoring and Why Reshore?
Reshoring, also known as onshoring, inshoring, or backshoring, is the process where the provision of goods and services is relocated from being performed by overseas sources to those within the company’s home country to enhance supply chain resilience. For our purposes, reshoring typically means a return to domestic manufacturing and producing these goods and services in the USA.
Our business involves providing the design and construction of high-precision injection molds and the production of high-quality injection molded parts for our customers. We’ve witnessed the negative results listed below from companies that have offshored injection molding and tooling production over the years.
Challenges and Drawbacks of Offshored Production
• Loss of intellectual property (I.P.)
• Longer than necessary cycle times
• Much longer than anticipated lead times
• Struggles with language and cultural barriers
• Wasted material due to poor cavity layouts and excessive runner sizing
• Expensive freight charges due to shipments traveling thousands of miles
• Lack of support or delays receiving support due to time zone differences
• Injection molds that still require extensive conditioning time and expense upon receipt
• Raw materials being different from specifications, misrepresented, or inconsistent over time
• Frequent tooling failures leading to downtime, repair expenses, and operational inefficiencies
• Lack of detailed design information creating a need to reverse engineer tooling to make repairs or spares
I’ve only listed a number of factors that directly affect businesses without taking into account that offshoring directly supports the economy of a country renowned for its unsafe working conditions and numerous other human rights violations.
There is a cost to condition new molds, to delays in lead times, the creation of poor quality, repairs caused by premature and frequent tooling wear and failures, to machine downtime, to the excessive mold changes performed, and other production inefficiencies created, to the waste of materials, and so much more.
At Matrix, we quoted three molds only to watch our customer source them to Asia for half of our quoted cost. After incredible delays, the customer received the tools but found they weren’t performing to their expectations. This was a low-volume program, and we were asked to help.
Needing our expertise, our customer sent the three tools to us to evaluate, alter to allow for proper mold function and then condition to print. The design and construction of these highly-complex connector tools were truly terrible, such that a case could be made for two of the three molds to be redesigned and built over again. After numerous mold design changes, tooling alterations, samplings, and more, we helped these highly-complex yet poorly designed and constructed tools to produce “acceptable” product.
We always say that success in injection molding starts with the foundation created by a sound mold design. In my example, the customer ended up paying about the same total that we originally quoted, but they still had to live with a tool created to a poor mold design. The result was slower cycle times, excessive material waste, and barely acceptable flash and mismatch on the parts – items which can cause heartache between production and quality members. They didn’t save money; actually, the tooling delays caused a delay to market and possibly reduced market share because of it and greatly eroded margins on every piece sold from that tool due to the cost of poor quality.
Comparing Costs: Reshoring Injection Molding to the USA vs. China
A recent study named, Rethinking Onshoring Opportunities for U.S. Manufacturing, compared the true total costs of ownership for various types of plastic products when produced in China as opposed to doing so in Ohio, Pennsylvania, and West Virginia. The results of the examples studied proved USA production to be very competitive with China when analyzed correctly – oftentimes being less expensive to manufacture here than there. The following is this study’s conclusion:
Each opportunity to capture the market share of currently imported products will have its own set of unique challenges and obstacles to overcome. However, the general process of exploration and execution will follow similar steps of those listed above.
Onshoring and reclaiming lost manufacturing is not an insurmountable task. The forces that led to offshoring are reversing in favor of the U.S. and plastic processors are positioned better now than in many decades to compete for lost manufacturing.
Furthermore, the changes and trends that are occurring are not temporary- they are fundamental. The U.S. energy advantage, the trending China labor shortages, the desire for shorter supply chains, and the cultural demands for reduced emissions are all critical factors in decision-making for the future. American plastic processors are positioned to compete and win.
It looks like the current landscape is providing the best opportunity in quite some time for reshoring injection molding business. Learn more about Matrix’s seamless transfer tooling & reshoring process that ensures a rapid return to production.
Contact Matrix for Supply Chain Reshoring Needs
The plastics industry seems to go through cycles of offshoring and then reshoring, and then again and again… I’ve witnessed a few of these cycles over the past 30 years. Chinese quality used to be poor, but the capabilities and expertise of some Chinese suppliers today is staggering; however, even the best Chinese companies are subject to factors out of their control. Their costs are rising, they have forced energy shut-downs for a week or longer at a time to conserve electricity, they have forced and complete lockdowns due to health concerns, they cannot always find the raw materials needed to get a job done, and so on.
There can be so many hidden costs and tremendous risks involved with sourcing to Asia. There are many highly capable sources in the United States, and the proximity and ingenuity for what can be accomplished here cannot be matched. We take great pride at Matrix in providing so much more than our customers expect by way of our creative solutions to their needs. Offshoring gives you a cookie-cutter solution, while our ingenuity provides unique solutions involving improved layouts, reduced waste, less risk, and improved margins, all to the benefit of our customers.
Our creative solutions may provide full near-term ROI. Whether you have immediate reshoring, outsourced production, retooling, or new capacity needs, we welcome you to contact us for a better understanding of how we can provide more than a cookie-cutter solution to your reshoring needs.
Director, Business and Engineering Development