Offshoring and Reshoring Reach a Balance for U.S.

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MAY 15, 2014

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In 2001, Generac Power Systems joined the wave of American companies shifting production to China. The move wiped out 400 jobs in Wisconsin, but few could argue with management’s logic: Chinese companies were offering to make a key component for $100 per unit less than the cost of producing it in the U.S. Now, however, Generac has brought manufacturing of that component back to its Whitewater plant. The move is part of a sea change in American manufacturing, reports the Los Angeles Times (May 13,2014): After three decades of an exodus of production to China and other low-wage countries, companies have sharply curtailed moves abroad. Some, like Generac, have begun to return manufacturing to U.S. shores. The tipping point came when Generac had enough sales to justify investing millions of dollars in new equipment for the Whitewater plant. The company can now produce an alternator with 1 worker in the time it took 4 workers in China.

Harry Moser, of Chicago’s Reshoring Institute, tracks the inflow of jobs and estimates that last year marked the first time since the offshoring trend began that factory jobs returning to the U.S. matched the number lost, at about 40,000 each. “Offshoring and ‘re-shoring’ were roughly in balance — I call that victory,” said Moser.

Several factors lie behind the change:  (1) Over the last decade, Chinese labor and transportation costs have jumped while U.S. wages have stagnated; (2) Manufacturing also has become more automated, further reducing labor’s weight in the cost equation; (3) The boom in natural gas production in the U.S., largely driven by fracking, has led to a 25% decrease in gas prices in the U.S., contrasted with a 138% increase in China; and (4) the rise of online commerce has made local control of supply chains more important, especially because many U.S. manufacturers report growing problems with quality control of goods made in China.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

3-D Printing–or Additive Manufacturing?

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MAY 13, 2014

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A new way to turbocharge turbine-making

Engineering companies now prefer to talk about “additive manufacturing” rather than “3D printing,” writes The Economist (May 3, 2014). One reason is that printing is not quite the right word for some of the technologies given this label. Whereas hobbyist-scale 3D printers typically build a product by squirting out drops of plastic, a newer manufacturing technique called selective laser melting zaps successive layers of powder with a laser or ion beam, hardening only certain bits. Larger firms want to stress the “manufacturing” aspect: that technology has moved beyond the development labs and is now being used on the factory floor to make complex metal parts. In Siemen’s gas turbines, for example, elaborately shaped blade components are hard to design and costly to make. But Siemens is using additive manufacturing machines to cut the cost and the time needed to replace the blades on customers’ turbines when they break– eventually from 44 weeks down to 4.

For simpler mechanical parts, the approach allows designers to imagine shapes that would be impossible to create through older techniques, besides greatly speeding up prototyping—for turbine blades and similar parts, from 16-20 weeks to just 48 hours, Siemens says. Additive manufacturing cuts the cost of tooling and materials: a piece can have all of its holes incorporated into it, with great precision, as it is built up from powder, instead of needing to have them expensively drilled afterwards. Siemens hopes to cut the cost of some parts by perhaps 30%.  As it gets easier to make low-volume, specialized parts in-house, Siemens gains bargaining-power when it comes to outsourcing such parts to other firms.

Aircraft engines, subject to even higher standards of reliability than turbines, are another area in which the engineering giants have implemented additive manufacturing. GE is using it to make fuel nozzles for its next-generation Leap engines. GE says the nozzles will be 25% lighter and five times more durable than their predecessors—and since there are 20 or so in each engine, the weight savings are significant.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

Zulily’s “Inventory-Lite” Model For E-Commerce

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MAY 11, 2014

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zulilyOne of the Internet’s fastest-growing retailers is also one of its slowest shippers, reports The Wall Street Journal (May 4, 2014). The mom-focused discount site takes an average of 2-3 weeks to get merchandise to customers, well off the pace of online veterans like Amazon.com and ShopRunner Inc., which have been training shoppers to expect delivery in 2 days.

The slow shipping times are the result of a bare-bones distribution system that is enabling 4-year-old Zulily to turn a profit in an industry where some of its peers have struggled. Zulily’s sales have soared thanks to its ability to get women to browse regularly for deals and make what are largely impulse buys before the sales end.

But Zulily’s Achilles’ heel may be shipping. Last year, it took an average of 11.5 days for items to be shipped from Zulily’s warehouses after customers ordered them. The reason: Zulily doesn’t buy in advance most of the products it offers. Instead, it orders the items from vendors after the sales end. Vendors then ship the merchandise in bulk to one of two Zulily warehouses, where the products are sorted and combined with other orders before being shipped back out.

“It’s more efficient to do it this way,” says the company’s COO. It also doesn’t accept returns. He adds: “The inventory-lite model is why Zulily can afford to sell a wide range of discounted merchandise from more than 10,000 vendors.” The company has been investing in automation at the warehouses so that they can handle more inventory more quickly. “We’re always looking to improve speed and efficiency.”

Customers going to Zulily’s website don’t know ahead of time what deals they will find, and the retailer tries to work the shipping lag into its sales—for example, it is currently selling summer apparel for women and children.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.com. Professors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.