It's the Real Deal

While it hasn’t resulted in the ‘herd mentality’ rush to offshore, returning manufacturing to the United States is gaining momentum


One of Acorn’s customers is Elkay Manufacturing, which manufactures kitchen cabinets; stainless steel sinks and faucets; water coolers; and drinking fountains. One of Elkay’s products is an undermount sink for the fabricator market to be installed with counter tops. Six years ago, the Oak Brook, Ill.-based company’s Lumberton, N.C., facility was capacity constrained. At the same time, the China facility was new and trying to stand on its own to serve the Asian market. The product was shifted to China to help get that facility started.

“We did see a cost saving but the intent was always to bring the product back to the U.S. to satisfy our ever-more demanding service-level requirements,” explained Kevin Keane, Director of Operations Finance, Elkay. “As China continued to ramp up, the product remained there but several factors resulted in us bringing the product back.”

They included:

  • A detailed cost analysis and significant reduction of changeover times in Lumberton that showed a smaller gap than originally thought (variable cost versus variable cost, inclusive of all shipping and import costs);
  • Introduction of cabinetry to the China business, giving them another foothold;
  • The economic downturn in the U.S., along with efficiency improvments leading to the elimination of the capacity issue in Lumberton; and
  • An opportunity for further cost reduction, primarily through material utilization. “That was a real win-win because it enabled Elkay to reduce cost while preserving American labor,” Keane said.

A final reason for the return, the filing of an eventually successful trade case affecting the import of drawn stainless steel sinks from China. In essence, Chinese manufacturers were “dumping” sinks on the U.S. market at less than fair value. “A fabricator can go to a Chinese manufacturer and buy a sink for less than the steel costs,” said Keane. “The Chinese government subsidies enabled these behaviors.”

No longer. On March 21, in response to anti-dumping and anti-subsidy petitions filed by Elkay in 2012, the U.S. International Trade Commission (ITC) unanimously ruled that unlawful pricing by Chinese producers caused material injury to Elkay and other domestic producers of drawn stainless steel sinks. The ruling led to five years of stiff duties. Four individual Chinese producers received rates ranging from 30.46 percent to 52.13 percent; 19 cooperating producers were hit with a 42.06 percent rate; and non-cooperating Chinese producers were slapped with a whopping 85.04 percent duty.

Transferring

Watching from his Atlanta office, Pratt Pande has seen products that his company, Proforma IdeaPress, could make, be manufactured overseas. The 30-year-old firm provides promotional products, printing services, business documents and eCommerce solutions.

“We are extremely price competitive, but the trend among companies has been to outsource to China and other regions where they could manufacture cheaply,” said Pande. “China does a lot of things process-wise. You take a product to decorate kids’ garments. It’s a very broad program with 300 to 400 SKUs. It’s done in China [because] it’s a lot of small pieces.”

“We always have a battle with our customers, overseas versus U.S.” he continued. “[Even if] the price is good, there’s long lead time, 90 to 120 days, and if it’s wrong…That’s one thing in favor of onshoring. Design to marketplace is now.”

Things have looked up recently for Proforma. The company put out a Request for Proposal (RFP) via the Ariba Discovery Network, seeking iron-on transfers. The connection paid off with $500,000 in business with a U.S. supplier. The result was a 30 percent reduction in supply costs and a lead-time reduction from 120 days to less than 30.

“Big companies like GE and Apple are bringing some manufacturing home,” said Ariba’s Tim Minahan. “But small companies now are empowered to make the right shoring decisions. There are tools, information sources, social and business networks. They can identify suppliers, get peer feedback and really look at total landed costs.”

At your service

A Hackett Group study confirmed that China’s relative competitive position is eroding to the detriment of its overall economy but very few of the low-skill Chinese manufacturing jobs will ever return to advanced economies. Most will simply move to other low-cost countries.

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