OMEs sourcing parts from overseas suppliers are feeling the effects of a global shipping gridlock that rapidly presented a surge in costs and unprecedented delays associated with the delivery of their components.
While many global manufacturers have already turned to Made In The USA suppliers, the onshoring (or “reshoring”) trend is expected to continue as uncertainty looms around the COVID-19 pandemic and economic recovery.
A recent article in The Wall Street Journal addresses how the growing demand from Western countries and port delays are driving costs and notes interesting research around the issue. For example, it cites Chinese exporters who have experienced cost per container nearly tripling since April 2020, from around $2,700 per 40-foot container to $7,500. The article points to a lot of insights for retail goods and finished products, which is a driver of the problem that is now impacting raw materials and components too.
This Rubber & Plastic News article summarized it well, explaining: “The problem: The arrival of the pandemic in spring halted overseas supply line movement for many manufacturers, and that was followed by an abnormal surge in fear-driven consumer demand for household goods, which was followed in turn by surging factory orders to make up for lost 2020 production time, which was followed by a late-2020 second wave of the pandemic.”
The real impact comes to life for everyone (including the consumer waiting longer for finished goods), with greater supply chain implications for OEMs sourcing parts from international providers. Beyond wait times and delivery delays, added shipping expenses are being passed on to manufacturers and the costs are not fixed for the foreseeable future.
At Rahco Rubber, we acknowledge that the ever-changing global economy undoubtedly adds new layers of complexity to the supply chain — and the global pandemic has presented devastating challenges that we have had to overcome — but there is no reason components should come at a higher cost. So, what is best for OEMs and suppliers? ++ Click through the info below to learn more…
Is Onshoring the answer?
We would be remiss to say that there are no benefits to offshoring — but the concept became too common practice. Many companies moved production to low-cost countries, worried that competitors would gain a cost advantage; fixating on a component’s unit price rather the total cost of ownership, which oftentimes results in a 20 to 30 percent miscalculation of actual offshoring costs. Some of the most cited costs include inventory carrying costs, shipping, travel expenses and communications issues, rising offshore wages, as well as intellectual property risk.
Today, many US manufacturers are re-evaluating production and sourcing locations and are realizing major benefits of reshoring for large volume of high-quality products.
In the molded rubber category, an uptick in reshoring began years ago with motivations tied to quality standards and reducing supply chain exposure. This resurgence was largely due to an unbalanced increase in production costs with a steady, and even declining standard for quality. For example, from 2000 to 2016, indexed manufacturing labor costs increased 400 percent in China, compared to only 2 percent in the US.
In the last few years, macro trends, trade war realities, regulations, and pandemic-related disruptions have further made the case clear for onshoring across industries, as OEMs realize the total costs of ownership of Made in USA components to be lower on average and declining.
All-in-all, the supplier-OEM partnership will become more important than ever, and companies that can source a local supplier will gain the advantage as the global shipping gridlock evolves.
What to look for in a parts supplier?
When a shipment isn’t crossing international borders or taking a long voyage over water, logistics costs are lower, far less complex and ensure a higher confidence of on-time delivery.
Whether doing business locally or across borders, when producing or assembling parts, OEMs should turn to suppliers that can truly address supply chain gaps and overall manufacturability through design enhancements, advanced product quality planning, and material offsets — such as Rahco Rubber.
Time to market can be reduced by leveraging fast prototyping, mold development and production, with secondary operations. For example, Rahco customers often find it easier and more cost effective for it to perform various assembly operations. This can range from simple packaging of various components to highly automated cells for part assembly and boxing, rubber part slitting and robotic part removal of molded parts.
Along with automated production processes, OEMs should source vertically integrated suppliers that work as partners. Rahco’s on-staff chemists and engineers works with customers as an extension of their staff to design, improve and optimize parts that meet lifestyle demands, mitigate risk, and help build sustainable, competitive advantages.
What if reshoring isn’t an option?
Of course, there are good reasons to source some products and components from low-cost countries, including producing or sourcing components to meet demand for products in such foreign markets.
If you continue to do business with foreign manufacturers, make sure they understand the pace needed to launch new products, process efficiency techniques, like design for manufacturability, and can produce parts to exacting specifications. Don’t sacrifice quality or reliability. Most importantly, your product shouldn’t break or wear out because the components are made poorly.
Rahco Rubber is offering a no-obligation, risk-free analysis to not only validate your material formulation, but ensure all designs and components are optimized for performance, cost efficiencies and manufacturability. To learn more, please contact Rahco or take advantage of its complimentary testing services online.