Reshoring, the Value Chain and the Power of Automation

[Transcript]

Jan Griffiths: 00:03

Welcome to the Auto Supply Chain Prophets podcast where we help you prepare for the future in the auto supply chain. I'm Jan Griffiths, your co-host and producer.

Cathy Fisher: 00:13

I'm Cathy Fisher, your podcast host. Our mission is to help automotive manufacturers recognized, prepare for and profit from whatever comes next in the auto supply chain.

Terry Onica: 00:23

I'm Terry Onica, your podcast host will be giving you best practices and key supply chain insights from industry leaders.

Jan Griffiths: 00:29

Because the auto supply chain is where the money is. Let's dive in.

Jan Griffiths: 00:37

Hello, and welcome to another episode of the Auto Supply Chain Prophets. A hot topic that's on everybody's mind these days is reshoring. It wasn't too long ago that we were all talking about off-shoring and we proudly wore the badge of honor for that high percentage of spend that we had in China. And now that strategy is changing. We have a special guest with us today. She is Rosemary Coates, and she is the Executive Director of the Reshoring Institute. She has many decades of experience, both offshoring and onshoring. Rosemary is also an author, and she's particularly excited about her book called The Reshoring Guidebook.

Cathy Fisher: 01:29

Rosemary, we're so glad to have you with us today to get a better understanding about what is happening with all of this reshoring. But I wanted to start by asking you Rosemary about supply chain. There's a lot of different definitions of supply chain out there. And we wanted to just kind of level set from your perspective, what is supply chain really all about?

Rosemary Coates: 01:50

I think we need to think about supply chain as being an umbrella term. And under that umbrella includes all of the operations of a firm, and that would be forecasting and planning on the front end, procurement, purchasing, certainly manufacturing operations, and then logistics Import-Export. However, I find myself explaining that a lot. Because people hear supply chain they think purchasing, and that's only one small slice.

Cathy Fisher: 02:21

So Rosemary, that definition is so aligned with what we are trying to bring forward, especially for the automotive industry. Unfortunately, we find the automotive industry tends to think supply chain very narrow in terms of sourcing or purchasing, just as you mentioned. But from that standpoint, I know that you've got deep expertise when it comes to reshoring. And the aspects of supply chain, can you tell us a little bit about what you're seeing as far as the trends currently, and going forward relative to reshoring.

Rosemary Coates: 02:52

That conversation kind of resulted in total cost of ownership methodologies. And that's the fundamental first step in considering reshoring. But when the pandemic happened, it introduced risk into supply chain in a way that we had never seen before. And so instead of just looking at total cost of ownership, or the cost benefit analysis, or reshoring, or just the basic economics, now we're considering risk and strategies in global manufacturing. So that was really the turning point by the big uptick after the pandemic. So right now we're seeing jobs coming back. There are some estimates that we're bringing in about 200,000 to 300,000 jobs a year that are coming back to the US. And of course that's dependent on a lot of different economic variables.

Cathy Fisher: 03:45

Yeah, absolutely. Well, when we look at those jobs that are coming back, there seems to be a critical concern that our electric vehicle battery supply chain is harbored there in China and that we're not going to be able to compete. Do you see some of what's coming back supportive of the EV battery supply chain?

Rosemary Coates: 04:06

Yeah, absolutely. And there already are a number of manufacturing sites that are coming online with respect to evey batteries in the US. So we've seen a brand new plant being designed and brought online in South Carolina. Of course, there's one in Nevada, there are definitely factories in the US. And then the infrastructure for designing charging stations is also something that was funded under the infrastructure act. And as a result of that, these charging stations are being built very rapidly all across the US. And of course, that's the kind of the weak link right now is even if you have an EV car, where are you going to get it charged. So in the future with many charging stations across the US, we should solve that problem. We're seeing battery production come back, and we're definitely seeing the infrastructure build out of charging stations across the nation.

Terry Onica: 05:05

Rosemary, not only the United States, but our audiences International. Do you see other countries doing the same thing?

Rosemary Coates: 05:13

Yeah, you know, this is a mistake that I think companies make is thinking about reshoring means bringing all your production back to the US. And that's not really the way global companies are thinking these days. Instead, they're looking at the global manufacturing landscape, and determining if they should keep some of their production in Asia and China. And specifically, because it's a huge growth market, especially for automotive. So when we talk about reshoring, we are talking about expanding manufacturing in the US or bringing some manufacturing back. But it's within the context of a bigger global strategy that companies are considering at this point.

Cathy Fisher: 05:54

I think that's really interesting that companies are not just looking at, oh, we have to bring things local back to the US. But I think you talk about local for local. Tell us a little bit about that concept of local for local.

Rosemary Coates: 06:07

This is a very important consideration. If you have a growth market in China, and you plan to sell your products there, you probably ought to be manufacturing there. And the same thing is true for the US, for example, if you're manufacturing in the US, setting a standard where you're trying to source as much as you can in the US and then, produce close to market. And that achieves a couple of things. So first of all, it's good for the local economy, for sure. But it also has a sustainability aspect to it. And if your board is telling you, you got to focus on environmental and social issues, this is one step in that direction, by manufacturing close to your market, you reduce your overall carbon footprint. And so this is what we call local for local manufacturing in the local environment for the local market.

Terry Onica: 06:57

Yes, ESG is getting to be so important. I'm involved in a supply chain standard. And we actually wrote it into the standard that you have to start thinking about it from the strategy at the plant internally, and also required of your supplier. So we're definitely seeing that trend as well, too, in the auto industry.

Rosemary Coates: 07:16

Yeah, I'm on the manufacturing Leadership Council of the National Association of Manufacturers. And I'll tell you, practically every single member is working with some kind of sustainability initiative. And sometimes companies have multiple initiatives going, and sometimes, it's a little bit smaller and less ambitious, but we're definitely seeing positive movement in that direction.

Terry Onica: 07:40

Do you see a lot of the clients that you work with when they're looking at reshoring? Bringing a lot of the ESG aspect into the discussions, and they're thinking of that as well, too?

Rosemary Coates: 07:51

Yeah, I think that's been growing over the past few years, it was sort of a nice to have in the past. And now it's a requirement company's operations being told, the board has decided we're going to embrace ESG. And now, that should filter down in terms of all kinds of programs with respect to sustainability.

Terry Onica: 08:12

We like to talk a lot about how money is made in the supply chain. To what extent when you're working with executives out there, how strategic is supply chain now? Is it still they just saying it's important? Or are they really making actions now to show that supply chains really strategically important to the organization?

Rosemary Coates: 08:31

You know, this concept of value in the supply chain, I think has been around for a while we for time even called the whole thing of value chain. And you see that reference fairly often. This idea of where is value added along the supply chain? And how can you profit on that at different parts of the supply chain? That concept has been talked about for a while. But I think the pandemic introduced vulnerabilities and risks in a way that made it clear that supply chain is essential, and often Achilles heel for companies. And that in a way we never saw before. You know, I've been doing this work. I've been in global supply chain management for 40 years, working both in industry and the consulting world and of course at the reshoring Institute. I am astonished at how much visibility supply chain got because of the pandemic. So for us it was pretty good. I used to tell people I worked in supply chain management and they'd sort of eyes would glaze over you know, but today's environment is headline news in The Wall Street Journal every day. This is a big change in not only notoriety but the acceptance I think that supply chain is the heart and soul of the manufacturing company and results in a seat at the table, the boardroom, chief supply chain officer, much more visibility at the executive level.

Terry Onica: 09:59

So we worked on Manufacturing, it was all about firefighting, heroics to get things out the door, a lot of manual processes. So what are some of the new strategies that you're seeing that people are doing to? Are you seeing the further emphasis on automation or processes? What are they doing differently to get out of that firefighting mode?

Rosemary Coates: 10:19

Yeah, we used to, we used to recognize the heroes, the expeditors, and the people. And in fact, long ago, when my career I worked for a defense contractor, and one of the program managers called my boss and said, we got to get Rosemary up to Canada, because she's got to expedite trucks across the nation. We don't really do that anymore. I think like communication obviously, has improved significantly over the past 40 years, and with the internet, and the capability to email and communicate in different ways has really helped. But I think also the introduction of tools as certainly automation through machine tools in the shop floor, as well as other automation perspectives and logistics, and the introduction of AI. And I think that is a revolution that is coming, a big tidal wave that's coming that were in some respects, not quite ready for. But artificial intelligence now has the ability to notify us when something's going on in the world so that we can take action. If you're data mining, you can use artificial intelligence to draw conclusions about what that data is telling you. There are all kinds of applications throughout supply chain where AI is going to be used extensively. But lots and lots of application in supply chain making it easier and more efficient. And giving us a you know, an opportunity to make decisions in supply chain based on actual data and facts were in the past, we were just picking up the phone and trying to call somebody and get my shipment on the plane. Well, we don't do that so much anymore.

Terry Onica: 11:59

I think one of the things that we have to think about the executive level is you got to get that data in some kind of system. Because when you're putting things in spreadsheets, which a lot of people we see still do at the plant level, it's hard to get to AI. So I'm really hoping that AI will be that silver bullet at the executive level to really start getting things in systems and using automation versus manual spreadsheets and things like that at the plant site.

Rosemary Coates: 12:27

Spreadsheets are a useful tool. And problem with the spreadsheet. It's not integrated into anything else. And the spreadsheet that I developed today with my little titles and how it works. And my pivot tables and so forth, maybe won't be understood by the next person down the line. So they can't use my spreadsheet necessarily, unless I explain it all to them, but it's not designed the way they would have designed it. So they may be useful for a particular project or some work you're doing today. But longer term, it should be integrated with your ERP system, looking at data extracts that are the truth across all systems and all users. That piece of it is developing and moving forward and will be more more commonly used in the future.

Cathy Fisher: 13:15

Being able to move from reactive to proactive and predictive is going to be so necessary. Speaking about predictive, we recognize Rosemary that you are on the cutting edge, you are the cutting edge of supply chain, especially when it comes to reshoring. What's next, what what should we be like focusing on going forward to be successful with our supply chains?

Rosemary Coates: 13:40

I think that use of all kinds of technology is just number one, using technology to understand the data that you're capturing how to make decisions. So she said predictive, there's a class of software out there that that surveys the world every day for things that are happening in the world and can tell you when there's some kind of noise being generated in newspapers or on the radio or in other communications about an issue. So for example, I know one software company had mapped various of their customers supply chains around the world and including automotive. And in early January of 2020. They started seeing things in the Chinese newspaper about this funny virus that was infecting people in Wuhan, and I will call it is sort of the Detroit of China. And so there's so many automotive companies there. Software company was able to notify their clients that there was something going on something big happening in Wuhan, China and those companies as a result their their customers as a result were able to make some fast decisions. Six weeks in advance of when all the rest of the world notice that there was an issue. So these advanced warnings give a customer a chance to really survey the landscape, try to figure out what's going on, make decisions quickly, so that you can protect your supply chain and make sure that it's still operating. So that's one thing I see. The other thing is, for years, we practice lean manufacturing, taking costs out of everything. That was a common approach, very popular, and still workable. But today, I think there's a recognition that you still have to keep some inventory on hand, especially for those long lead items or difficult to procure parts, or specialty parts. Because, when there's a disruption in the supply chain, like the pandemic, you may not be able to get those for a long time, I saw a headline in the spring of 2020 that said, you can't make a car with three wheels. This was a relation to the Hyundai plant in Korea, that was unable to get parts they were practicing lean manufacturing, they had no inventory other than what was moving in the pipeline. And they essentially had to shut down their production line because they couldn't get parts. And so these are serious things that should be considered. And now, rethinking some of those lean strategies to make them less lean, and a little more viable in case of fact, when there's another big event, like the pandemic, because they're likely to come.

Cathy Fisher: 16:31

Yeah, absolutely. And I think it's very interesting to that what I'm hearing from your message is that we can't apply the same principles to every aspect of our supply chain. And this is a big mistake we see so many manufacturers make especially let's take semiconductors is a great example of this. Many automotive manufacturers were planning their semiconductor requirements in the same way that they were planning fasteners, for instance. And those are two completely different supply chains. And they require a different set of criteria and planning parameters that and so that's a key message that we've been really emphasizing, especially in the automotive space is that we have to be a lot more discerning in how we are planning those supply chains. What are some other factors that the manufacturers should be thinking about in planning these different supply chains? What are some things that are out there that maybe they aren't paying attention to right now that they should be?

Rosemary Coates: 17:30

I think the big mistake is to say supply chain and consider it generic. Because every company has multiple supply chains, just as you were saying, supply chain for fasteners is completely different from a supply chain for batteries, for example, or you know, or any other part tires, whatever. I think it's wrongheaded to say we have we have supply chain management, and leave it at that, because you're really managing multiple supply chains, and they operate differently. You have to think about them strategically. What do you have to do in each of these supply chains to make them work? And that's a kind of a new concept over the years, and I've worked with my customers on different kinds of projects, and I talked about this with them, and they're like, Oh, well, you have multiple supply chains. You know, it was kind of, you know, it was a real eye opening experience. But continuing to introduce concepts like that, I think is the right way to go. Because supply chain is complicated. When I started out my career, I managed a shipping and receiving dock. And my job was to make sure we got all those boxes off the dock every day. That was it. Right? There was no thinking about global supply chain movements or tracking shipments or anything like that there was none of that. Today's environment. It's a whole different broad view of the landscape of the manufacturing world. And how you make things work, you know, in an orchestrated way.

Terry Onica: 19:09

What are some of the things are the considerations companies are using as their reshoring back to North America to offset costs? Is it Foreign Trade Zones? Is it something else? Is it multiple things?

Rosemary Coates: 19:23

Yeah, definitely multiple things. Foreign Trade Zones? Yes. I think they're used to a lesser extent, but yes, definitely. That's an option. The company GoPro that makes a little cameras that you put on your hat when you're bicycling or whatever. They use Foreign Trade Zone extensively to minimize the import costs and be able to assemble products inside the Foreign Trade Zone and then enter them into the United States at a lower rate of duty. So you know, their applications like that. The bigger components of that are definitely automation. So automate getting as many of the processes as possible to extract labor costs. Labor costs in the US are just really high by comparison to other places in the world. At the resharing Institute, we did a comparison of labor across them that we published right before Christmas, it's, and we compared labor costs in 12 countries across the world. So we took the same job description, about 10 of those job descriptions and compare the labor rates in 12 different countries. And what we found was kind of a surprise, China's no longer on the low end, China's squarely in the middle. Other labor costs around the world are much lower. So the three lowest labor cost areas were India, Vietnam and Mexico. And so if you have high labor content and something you're manufacturing, you have two choices, you either automate and extract that labor or you move to a low cost country to produce those parts for you. So those are two options. And I think most companies are moving toward a more automation and because in the long term, it improves productivity and usually quality will improve as well and extracts the labor so it makes it a low cost option.

Jan Griffiths: 21:18

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