With mounting evidence that the US is poised for a "manufacturing renaissance," product development experts are building a case for methodologies such as lean and design for manufacture and assembly (DFMA). They tout them as critical tools to help engineering organizations prepare for, and even accelerate, what most laud as a long-anticipated, widely-heralded shift, only a few years away.
A recent report by the Boston Consulting Group says a number of factors, including a 15 percent to 20 percent rise in Chinese wages, will put China's labor rates for manufacturing on par with US rates by 2015. In addition to the narrowing wage gap, flexible work rules and government incentives are making states like Mississippi, South Carolina, Alabama, and others increasingly attractive as low-cost bases for US manufacturing.
In a separate report, consulting giant Accenture found that 61 percent of 287 companies surveyed said they may need to move operations closer to customers and their end markets -- a finding many experts say could portend a more rigorous examination of overseas outsourcing practices for US-based manufacturers in the future.
What's the connection between these findings and engineering organizations? Speakers at the recent 2011 International Forum on Design for Manufacture and Assembly, a conference on manufacturing and DFMA practices hosted by Boothroyd Dewhurst, spoke emphatically on how embracing DFMA and lean practices early on in the product design phase can further close the gap and make it more attractive for companies to bring manufacturing back to US suppliers.
That was certainly the message from speaker Harry Moser, founder and president of the Reshoring Initiative, a non-profit aimed at championing the cause of bringing manufacturing back to the US. Moser says most companies make the decision to outsource on a pure cost basis, not properly considering the total cost of ownership (TCO) and hidden costs around outsourcing manufacturing to China and other overseas regions. "A lot of big companies don't really understand what it costs them when they offshore," he says, noting they ignore about 20 percent of the total costs of outsourcing related to expenses around travel, shipping, duties, tariffs, and even inventory, since overseas suppliers typically deliver parts in larger shipments that need to be kept in warehouses.
As part of his mission, Moser has created the TCO Estimator, an Excel spreadsheet he offers for free on the organization's Website, to help companies account for those expenses and calculate the real cost of outsourcing to suppliers in other countries. While Moser isn't claiming all manufacturing that's been offshored comes back to US soil, he says there's about 20 percent to 30 percent of the cases where it makes sense to bring it back now. He says 50 percent should come back in the next three or four years.
The BCG study, which also advocates taking the TCO approach to evaluating outsourcing decisions, found that goods that are labor intensive and produced in high volume (for example, textiles and many electronics) will continue to be best produced overseas. However, products that require less labor and are only produced in modest volumes (think household appliances and construction equipment) would benefit from a shift back to US production.
Moser and others say tools and methodologies like DFMA come into play because they can help manufacturers make better design decisions early on that reduce parts and materials costs. According to data gathered by Boothroyd Dewhurst, while most companies focus their decisions to outsource primarily on cheap labor, labor accounts for only 4 percent of a product's total expenses. In comparison, the Boothroyd Dewhurst figures show that cost around parts and assemblies contributes to 72 percent of the total tab.
"So much of the product cost is around materials and process, but most companies don't bother to attack that first -- the first thing they go for is labor," says Dave Meeker, a consultant with Neoteric Product Development and an MIT lecturer on mechanical engineering, who also spoke at the recent DFMA Forum. "A lot of products don't even have a lot of labor any more. If there's not a lot of labor, the cost is driven by materials and parts and assembly. The best part is the one that you're not buying, and DFMA helps you get rid of parts."
Boothroyd Dewhurst customers tout some impressive numbers around reduction of parts, and assemblies and cost savings. Well-known companies like Dell, Whirlpool, Harley-Davidson, and others have active DFMA programs in engineering and are touting laudable results, including cost reductions of 50 percent, 45 percent-shorter product development cycles, and part count decreases of more than half. There are other, less-publicized benefits where DFMA's ability to reduce part counts resulted in savings in areas like warranty and service, CAD and PDM, and assembly documentation.
Practicing DFMA early on in the design cycle is key to unleashing its potential. Meeker says 75 percent to 90 percent of the final cost of a product is locked in after only 5 percent to 10 percent of the initial design process is done. "You lock in a lot of the cost even though you haven't done much of the design work," he says. "With DFMA, you can look at more alternatives and examine everything in front of you in more detail, making more precise tradeoffs."