Reshoring Opportunities for Metalcasters
Many manufacturers, including metalcasters, have been encouraged by the push from Washington to return supply chains from Asia to the U.S.
Foundry industry veteran Alan Holtz confirmed to Modern Casting that foundry customers “are not only continuing reshoring efforts but, in most cases, they are increasing efforts to move out of China. My contacts’ belief is that the current COVID-19 situation has actually increased the acceleration in that direction.”
Nevertheless, moving supply chains back to North America is proving daunting for others. While the movement to reshore supply chains seems to be growing rapidly for some market segments—medical equipment and prescription drugs are perhaps the best known—discussions with metalcasters reveal that reshoring remains difficult. The challenges are surmountable, but we have to identify the problems accurately to know how to fix them.
Several metalcasters were kind enough to provide information for this glimpse of how metalcasters view reshoring. Not everyone wished to be quoted, and we are honoring their request for anonymity. The information shared here about foundries seeking to reshore production originates with metalcasters and is focused on foundries.
There are several compelling reasons for returning foundry-based supply chains to North America. For example, shorter supply chains are more dependable. Better communication is likely across the supply chain when supply chains are close to home. Transportation costs should be lower. Lead times should improve. Customers should see the obvious benefits of reshoring, at least theoretically.
Impediments to reshoring, according to metalcasters, are familiar, long-standing issues. Among them are connecting with the correct decision-makers, what the buyer does not understand about the true local cost of ownership, and the ultimate tyranny of the invoice price which ignores real costs.
We should ask, is there an effective sales tool that specifically supports reshoring for metalcasters?
One industry expert with career experience in both selling and purchasing castings distilled the situation saying, “In my opinion, using Total Cost of Ownership (TCO) analysis is the only way to make an informed decision. Sourcing decisions need to be made with full facts and data taken into consideration. Freight costs can be a big factor in the TCO and must be compared. The cost to develop a supplier is also one that is often overlooked.”
Tom Kayser, the sales & marketing manager at Osco Industries, Portsmouth, Ohio, pointed out, “the TCO can help identify prospects,” which is helpful, but it doesn’t “always close the deal the way it should,” meaning the customer doesn’t understand or is stubborn about buying into the true total cost of cast parts. The best customer for a foundry like Osco is one that appreciates what the TCO is offering them. The right decision-maker is the customer who understands the TCO can prevent overpayment for cast parts.
Why? The invoice price. “I can get my foot in the door with the guy who buys the castings, but he’s not the decision maker who specifies the company buy my casting. The buyer is the one says, ‘all we care about is the price on the invoice,’” Kayser said.
Some simply don’t trust the idea of reshoring, based on this very problem. As another foundry leader said, “I’ve feared all along that any reshoring would be temporary. My perception is that buyers want a domestic source but very few are willing to pay the extra money” they think they pay when procuring from domestic sources.
Price isn’t everything, and this present moment could be the best time to emphasize that message. It’s essential to encourage foundry customers to better grasp how China undermines U.S. industry, specifically metalcasters, and how this costs us more in the end.
Manufacturing veteran Jim Eaton, now the business development manager with B&L Systems in Southwest Michigan, explains, “China has what is called the ‘hidden factory.’ When you bring a part back, you later find out there were 4 people doing rework or clean up on the part that they didn’t tell you about.”
Still, pricing continues as a barrier. “When you bring back a part vs an assembly, it’s very difficult to match the price in China. No one wants to increase prices, meaning companies in the US will be very reluctant to reshore if it means increasing prices to customers. Especially companies like (large OEMs) with mostly foreign competition who are also purchasing from China. If customers do not value shorter lead times and higher quality, they will have difficulty regaining business from China,” Eaton said.
As Kayser points out, China has moved to reopen its economy and is getting ahead of the US. If Chinese foundries ‘fill their pipeline’ before the US does the same, the destruction could be irreversible for the foreseeable future,” Kayser said.
It’s time to develop a plan to educate foundry customers on the importance of the TCO, and one efficient way to accomplish that is to make the TCO part of your sales arsenal.
Click here to see the article in the June 2020 digital edition.