Supply issues rekindle interest in U.S. factories

Michael Araten knows something about the return of manufacturing to the United States.

Araten and his company, The Rodon Group, received numerous accolades and a visit from President Barack Obama a few years ago after moving assembly of his K’nex brand of plastic construction toys from China to the factory. of Rodon in Montgomery County, Pennsylvania.

As global supply chains have recently collapsed during the pandemic, Araten has stepped up its evangelism to bring production back to America, a process known as reshoring. He and Rodon are encouraging other U.S. manufacturers to assess the true costs of overseas production — including skyrocketing costs and shipping delays — and bring some manufacturing back to U.S. companies like Rodon, which employs 128 people who manufacture precision plastic parts.

“All of a sudden, the things you thought you were saving on overseas, you’re not saving,” said Araten, managing director of Sterling Drive Ventures, the family-owned Rodon Group. “I saw this happen during the Great Recession: there’s a shock to the economic system that causes people to really look at their total cost of ownership.”

Relocation efforts have seen renewed interest during the pandemic, spurred by frustration over supply shortages and price increases. Recently, Intel announced plans to build “the largest silicon manufacturing site on the planet” near Columbus, Ohio, a $20 billion investment to address the global undersupply of computer chips whose production is dominated by Asia.

Some proponents say domestic manufacturing is at a turning point, after years of contraction. The pandemic has prompted scrutiny of weaknesses in supply chains and raised the possibility of relocation as a potential solution.

But changing course after five decades of offshoring mostly to Asia won’t happen quickly, experts say. Reincarnated American industries will likely require more automation and create fewer direct jobs than the uncompetitive factories that have closed in recent decades.

The decision to bring back manufacturing is not accidental and requires thought through every step of sourcing, production and packaging, Araten said. The global supply chains that have evolved over the past decades to produce a banquet of affordable goods are extremely complex and difficult to dismantle and rebuild.

AUTOMATING

To compete with foreign manufacturers with low labor costs, Rodon has invested heavily in automation and robotics. Much of Araten’s workforce is concentrated in highly skilled jobs, such as manufacturing and maintaining the sophisticated stainless steel molds used to make plastic parts, and supervising robotic molding presses. by injection. Rodon has approximately 250,000 square feet of manufacturing, office and warehouse space at two locations in Hatfield, PA.

In a typical production run, Tammy Shiber, 59, a quality inspector who celebrated her 34th birthday at Rodon earlier this month, oversees a fleet of automated machines making fine-mesh discs that serve as filters for the background of single serve coffee pods.

A robotic arm removes a sheet of discs from the hot mold, runs them through an automated visual inspection to ensure the perforations are open, separates the discs from their plastic shafts (the remaining plastic pads are recycled), then returns back to collect a new batch of discs. Time and time again, 32 presses turn out 8 million records a day.

A large part of Rodon’s new activities are in the medical field. A company contracted Rodon to supply plastic parts for its covid-19 test kits, a business that accelerated with the rise of the omicron variant. Rodon has also recently developed special plastic handles for cartons that can withstand supercool freezers that store certain vaccines.

After Araten heard of a shortage of medical swabs needed for covid testing – there are few significant domestic producers and hospitals rely on imports – Rodon developed a flexible medical-grade plastic nasal swab in consultation with the Fox Chase Cancer Center. He now makes a million a week. He wants to increase production, but new equipment is out of stock – waiting for imported parts stuck in the supply chain.

Most plastic parts manufactured by Rodon perform vital support functions, such as threaded joints in food and beverage containers, or window and door components. Toys make up less than 10% of its business – the K’nex line the company is known for was sold in 2018, although Rodon still produces them under contract.

Rodon’s supporting role as a supplier of products made by other manufacturers means there is a limit to the influence its efforts can have on complex global supply chains. “We are not the general contractor of the world,” Araten said.

GREATER CONTROL

The attention to offshoring is not new – America has been losing factories and jobs to low-cost countries since the 1970s, and offshoring periodically becomes a hot political topic, especially during economic downturns. .

Reading Truck, a Berks County, Pennsylvania manufacturer that builds distinctive toolbox service bodies to fit truck chassis, wanted to resume manufacturing it had outsourced to China about a decade ago, amid concerns over the quality of steel and aluminum manufacturing. by foreign suppliers. He brought the manufacturing work to his factories in Pennsylvania and Oklahoma, and has no regrets.

“Having manufacturing done locally here in Reading and Claremore, Oklahoma gives us greater control over our own destiny, especially in the ever-changing fragile environment in which we currently operate,” Balint said. Peto, Vice President of Purchasing at Reading Truck. The company has 1,200 employees at 22 sites, but more than half are in Reading.

Peto said the “Made in America” ​​distinction is important to his customers, field mechanics and tradesmen who use Reading trucks as mobile workshops. But Reading Truck’s fortunes are still tied to global supply chains. Its sales depend on the availability of truck chassis, mainly from American manufacturers like Ford and General Motors, whose production is hampered by a limited supply of critical imported components such as computer chips.

“The lack of chassis availability is impacting our end users,” Peto said.

The higher cost of US labor and compliance with stricter US environmental and labor regulations can make US products less competitive in the marketplace. Americans gained access to more affordable manufactured goods at lower prices than previous generations, thanks in part to low-cost foreign goods. But offshoring has led to the loss of American jobs and incomes and disruption to local economies.

Despite reports from proponents of a resurgence in reshoring, skeptics say the country’s trade deficit hit a record high last year amid growing demand for imported goods. The annual Relocation Index, compiled by international consultancy Kearney to determine whether manufacturing jobs are returning to America from 14 low-cost Asian countries, found factory work soared in Asia in 2020 for reach its highest level since 2008.

“Our latest findings show that the United States has not recovered manufacturing jobs significantly,” Kearney reported last year.

POLITICAL DIMENSION

Sometimes there’s a big difference between what corporate executives say about reshoring and what’s actually happening on the ground, said Morris Cohen, a professor emeritus at the Wharton School at the University of Pennsylvania. Cohen specializes in manufacturing and logistics and says he was “working on global supply chain strategy long before supply chains got cool.”

Companies often announce relocation initiatives with great fanfare because they want to be seen as good corporate citizens, Cohen said, citing Apple’s 2019 announcement that it was transferring manufacturing of its top Mac Pro laptop. range from China to Texas.

“Well, if you look at the data, the vast majority of what they continue to produce was produced in China,” he said. “There is a political dimension to this that you cannot ignore.”

Cohen co-authored research in 2015 and 2016 that showed much of the manufacturing touted as “reshored” was actually new investment by foreign companies seeking access to U.S. markets and innovation. The research found that global supply chain movements are intertwining more than ever, and even within the same company, one department may outsource while another relocates. Ultimately, there was no significant net improvement in the US manufacturing sector.

BALANCE CHANGE

But Cohen said there appears to be “a shift in the balance” underway due to the deep supply chain disruptions caused by the pandemic.

Historically, the need for efficiency and low costs has driven companies to develop global supply chains, often allocating all production to large factories overseas, he said. But the pandemic has shown managers “that you can go too far down this road” and that maintaining just-in-time inventory is too risky.

Managers are now talking about giving up some efficiency and some risk to achieve resilience in their supply chains, establishing new regional secondary supply chains, he said.

“There has been a change in attitude in companies,” Cohen said. “But it costs nothing to talk. What have they actually done? And as we’ve seen before, you don’t see a massive factory comeback in the US or Western Europe.”

Araten confirms that many of the companies he has profiled see domestic factories as a backup to their overseas production, a sort of insurance policy against supply chain disruptions, including political instability in the stranger.

“It’s hard to totally unplug a supply chain, if you’re waist deep in China,” he said. “A lot of companies are trying to make the United States part of their supply chain so that if things start happening overseas, they can do it here.”

Araten hopes that eventually the makers will bring all their production back to America.

“I know it was five decades of offshoring and we’re not going to solve it in a year,” he said. “If you make all your essentials here, it makes your own country richer, it gives you more options, and it just allows you to thrive.”