Many domestic manufacturers, including automakers, had started reevaluating their supply chains even before the COVID-19 pandemic hit, but the international health crisis has only accelerated those conversations.
“We continue to hear from a lot of members that they already were evaluating the supply chain pre-COVID given the trade war over the last year or so — companies were already starting to think about that,” National Association of Manufacturers’ Chief Economist Chad Moutray said during a discussion at the recent Center for Automotive Research (CAR) Management Briefing Seminars.
“The USMCA (United States-Mexico-Canada Agreement) … was also forcing that conversation, especially in the auto sector,” Moutray said. “But I think all of those have been exacerbated post-COVID and finding ways we can encourage that supply chain to relocate to the U.S. is a huge priority for us.”
Moutray was one of the panelists at a breakout session entitled “Reshoring and Diversification,” which highlighted the reshoring opportunities becoming available to auto suppliers and how they can best compete to land new business.
While a number of factors have led manufacturers in various sectors to take a hard look at their international supply chains, the many disruptions brought on by COVID-19 have been a catalyst in forcing these businesses to reckon with risks and inefficiencies. COVID-19 was also understandably the topic de jour at the CAR Briefings as automakers and suppliers address the many industry-specific challenges that this prolonged pandemic has imposed.
Moutray revealed information from a survey of NAM’s members that chronicled the business effects of COVID-19. Among respondents, 59.5 percent reported disruptions in their supply chains.
“These are pretty sizable disruptions — and about half our members said they had unplanned production stops, about 40 percent of our members had to furlough workers,” Moutray said. “Those numbers were actually larger for larger companies. The larger companies tended to be the most pessimistic in their outlook overall, and that would include the auto sector as well.”
U.S. at a disadvantage?
Harry Moser, an industry veteran and founder of the Reshoring Initiative, appeared with Moutray at the CAR session and highlighted reasons manufacturers initially brought their supply chains offshore and how domestic manufacturers can work to reel it back.
The primary issue was no surprise: Price.
“They don’t go there because of the weather and they typically don’t go there because of the technology,” Moser said during the panel. “They go there because of price. If you look at the other categories, it’s mostly driven because of price.”
Moser pointed out that price in the U.S. is about 20-percent higher than in developed countries such as Germany and 40-percent higher than in developing countries like China.
But price is also an area in which the United States is beginning to close the gap as countries like China see rising labor costs.
The United States also has fallen behind because of a failure to invest in automation and technology.
“For example, we have about a third as many robots per thousand manufacturing workers as does Korea,” Moser said. “We spend about a third as much on CNC machine tools as China. So these other countries with lower wage rates, who presumably would have less need to automate, are automating much more rapidly than we are.”
The other major issue is a lack of talent and how most promising high school students opt for higher education rather than apprenticeship programs.
Moser and Moutray pondered whether domestic manufacturers would have the workforce capacity if floods of industrial work came back to the U.S.
“The capital will be there,” Moutray said. “The issue would be the workforce. We need to make sure we have a workforce that is ready for the jobs that are coming here. Companies have struggled with that over the last year, especially with Baby Boomer retirements that will exacerbate that skills challenge.”
Local suppliers find opportunity
Pat Greene, president of Grand Rapids-based Cascade Die Casting Group Inc., said that his aluminum and zinc die casting business, which is utilized heavily by Tier 1 suppliers, has encountered new opportunities because of reshoring.
“We’ve actually had a number of opportunities to take over work that is currently sourced overseas,” Greene said. “I will say that we’re really becoming more competitive with automation and process improvement, so that’s made us more competitive.”
Just as foretold by Moser and Moutray, price has proven to be the sticking point as Greene’s company works to achieve a price point that is more akin to what Tier 1 suppliers are finding in lower cost countries.
The reshoring opportunities have led to a number of conversations, but Greene admitted that his team has yet to see any work move.
“Many of these exercises are primarily just that — they’re exercises to know where (the customer) stands if they do need to turn around and move the work if there is another wave of the pandemic or another disruption because of transportation issues or some of those things,” he said.
Still, Greene agreed that the COVID-19 pandemic certainly has automakers and manufacturers rethinking their supply chains.
“I think they recognize they’re at risk when they have a longer supply chain — the risk of disruption and interruption that we saw over the last few months,” he said. “It does seem to be something that they’re looking at seriously and in some cases having dual sources — one source over there and one source here. I believe that they are considering those factors, but it’s been our experience that price is still a very important aspect of it.”