How To Buy or Sell Investment Castings Using TCO By Harry Moser, Founder/President, Reshoring Initiative and Sandy Montalbano, Consultant to the Reshoring Initiative
TCO Basics Sixty percent of companies make sourcing decisions based solely on price, oftentimes resulting in a 20 to 30 percent understatement of offshoring costs. The Total Cost of Ownership Estimator® (TCO) is a free online tool that helps companies account for all relevant factors — overhead, balance sheet, risks, corporate strategy and other external and internal business considerations — to determine the true total cost.
We Suggest Doing the Math TCO analysis can help your company objectively quantify, forecast and minimize Total Cost. It takes into account: freight and duty; travel expense and time; inventory carrying cost; warranty; IP loss; impact on product innovation from having manufacturing distant from engineering; and the losses from stock-outs due to long delivery times. TCO also quantifies many other factors such as those associated with the risk of supply chain shocks or disruptions caused by natural disasters and political unrest. It also helps to forecast the impact of future wage and currency changes. Using this information, companies can better evaluate sourcing, identify alternatives and even make a case when selling against offshore competitors.
Using TCO for Selling vs. Imports Have you ever found yourself in a situation where you are competing with a lower priced offshore product? You can use TCO to make a strong case when selling against offshore competitors. We suggest offering to help the customer compare the TCO of your offer vs. the lower priced offshore offer. Do the TCO analysis from the customer’s perspective and review the results with the buyer. It is best to be conservative and understate the hidden costs.
A Million Dollar Idea Here is a real world example of a company that used TCO to sell against imports. EMS (Electronic Manufacturing Services) contract manufacturer Morey Corporation was in pursuit of a $60 million ($15+ million per year for four years) electronics build opportunity vs. a lower priced Asian competitor. Morey, helped by the Reshoring Initiative®, used the TCO Estimator to show the customer that although Morey’s price was higher, its TCO was lower. Tony Woodall, VP of Sales reported, “We used the TCO calculator from the Reshoring Initiative. This tool framed the costs and risks of both options and was a crucial piece to our winning strategy.” Over 1,600 Companies Have Chosen U.S. Manufacturing Over Offshore Many companies have already successfully brought the manufacture of parts or products back to the U.S. from offshore. These stories highlight how companies have improved quality, created jobs and enhanced their ability to meet customer demands through reshoring.
KSM Castings brought automotive component production from Germany to North Carolina, creating 80 jobs.
PC Production Castings, Inc. convinced their customer Dazor to reshore or stay onshore, resulting in Dazor reshoring 90% of their parts.
Hubbardton Forge regularly calculates TCO if the Chinese price of die castings is within 50% of the U.S. price.
LA Aluminum Casting Company helped customers to reshore molds and castings from offshore manufacturers, shortening supply chains and increasing quality.
You can report your reshoring successes on our website and see additional real-world success stories submitted directly by manufacturers, technology suppliers and distributors.
Together We Can Drive More Growth The reshoring trend is at record levels and we need your help to drive more growth! For the first time in decades, more manufacturing jobs are returning to the United States than are going offshore. We need companies to document their actions and do the math while we motivate needed policy changes. The combined reshoring and foreign direct investment (FDI) trends grew by over 10 percent in 2016, adding 77,000 jobs (tying the 2014 record) and exceeding the rate of offshoring by about 27,000 jobs. In comparison, a net annual average of 220,000 jobs were offshored from 2000 to 2003. The 2016 results bring the total number of manufacturing jobs brought back from offshore to more than 338,000 since the manufacturing employment low of February 2010.
This is huge progress but there are many exciting opportunities and challenges to bringing back all of the 3 to 4 million U.S. manufacturing jobs still offshore. Here is how you can help.
Apply to win the first National Reshoring Award
The Reshoring Initiative, in conjunction with the Precision Metalforming Association (PMA), invites companies that have successfully reshored products, parts or tooling made primarily by metal forming, fabricating or machining to apply for the first National Reshoring Award. So, a machined casting would fit. See if your reshoring is eligible!
Tell Washington what policy changes are needed!
The Reshoring Initiative and Plante Moran are launching the “Manufacturing Reshoring Survey” to examine the overriding issues and national policy changes needed to impact plant location and sourcing decisions. Past surveys tell us whether companies have reshored or will reshore and why. This survey focuses on how much companies have offshored and what national policy changes would motivate them to reshore X% of their offshoring. We hope your company will complete the survey today!"
Help us bring more jobs back to the U.S.! As of 2016, for the first time probably since the 1970s, there was a net positive flow of U.S. jobs from offshore. We urge you to participate in the programs mentioned above and use our data and resources to help your company and customers accelerate reshoring.
We want to hear about your investment casting reshoring cases. Contact us and we will help to tell your reshoring success story, including in a presentation at the 2018 ICI Spring Management Meeting in Sonoma.
Reshoring Resources Are you and your company using all of the available Reshoring resources? Here is a list of just a few helpful tools to aid in your reshoring decision-making process: