Hard lessons learned from the Covid-19 pandemic warrant shortening supply chains to reduce risk and increase resilience here in the United States. Essential industries like aerospace and defense that require mission-critical components for high-stakes applications are focused on transforming supply chains to manage disruptions.
A recent study by Deloitte shows a likely shift toward strategies like reshoring to strengthen and stabilize aerospace supply chains. A PWC 2020 aerospace manufacturing attractiveness ranking placed the United States in the No. 1 position. Here are some reshoring successes in the aerospace and defense sector that I would like to share.
California-based Intel, a manufacturer of advanced microelectronics, recently announced in March that it will spend $20 billion to build two new factories in Arizona. Intel’s U.S. manufacturing has national security implications because about 75 percent of the world’s chip making capacity is in Asia. Recently, Intel announced it won a second-phase contract in a project aimed at helping the U.S. military make more advanced semiconductors within the United States.
“I think one of the areas where we can have the most impact on China broadly is re-shoring microelectronics,” said Ellen Lord, the Pentagon’s chief weapons buyer, to the U.S. Senate Armed Services Committee, as stated in an article from 2020.
AirBorn Inc., a manufacturer of specialized electronics for the aerospace industry, will invest $3.7 million to expand its facility in Erie County, Pa. The investment will replace imports, support new defense and medical industry projects and create 249 new jobs. Government incentives, image/brand, skilled workforce availability and training and import replacement are what made U.S. manufacturing attractive for AirBorn.
“Lives depend on what we build in Lake City,” said Jon Nelson, director of operations, in an article in 2019. “At AirBorn, our work is much more than a job, it’s a purpose. We build mission-critical components that cannot fail. We have a wonderful team of skilled assemblers who ensure that our products are of the highest quality and reliability.”
In 2016, Connecticut-based Carey Mfg. began reshoring its manufacturing operations from China to the United States. They invested more than $5 million in equipment, people and resources to bring production of its hardware for military, aerospace, computer, electronics, telecom, automotive and consumer applications back to Connecticut. Chinese suppliers’ unpredictable pricing and quality, supply chain risks and political instability were some of the company’s reasons for reshoring production. Automation, technology and the positive impact on the domestic economy made reshoring attractive.
“We are committed to manufacturing in the USA and continue to move the manufacturing and create jobs and invest money in the supply chain in Connecticut,” said Paul S. Lavoie, general manager, in an article published in 2019. “In addition, we’ve acquired new customers who are interested in quality USA-made products.”
In 2019, Rada Technologies LLC, a U.S. subsidiary of Israel-based Rada Electronic Industries, announced plans for a U.S. manufacturing operation in Germantown, Md., that would create 80 new jobs. RADA produces electronics for the aerospace and defense industry.
Quantifying costs and risks
In 2020, reshoring exceeded foreign direct investment (FDI) in job creation with a cumulative job announcement total of more than 1 million from 2010 through 2020. This positive trend has been driven by rising Chinese wages; U.S. automation and lean efforts; and companies revising their sourcing decision metrics, especially due to pandemic-driven resiliency concerns. Often, the revision is to use Total Cost of Ownership (TCO) instead of FOB or landed cost (typically FOB [which indicates when liability and ownership of goods is transferred from a seller to a buyer] price plus duty and freight). The Reshoring Initiative’s TCO Estimator and a TCO training webinar are free to use online.
TCO analysis helps companies objectively quantify, forecast and minimize total cost. It takes into account hard costs such as freight and duty; travel expense and time; inventory carrying cost; and warranty.
It also takes into account risks and strategic impacts such as intellectual property risk; impact on product innovation from having manufacturing distant from engineering; the losses from stock-outs due to long delivery times; and the risk of supply chain shocks or disruptions caused by natural disasters, political unrest or even a pandemic. Using this information, companies can better evaluate sourcing, identify alternatives, and even make a case when selling against offshore competitors.
Now is an especially good time for companies to re-evaluate the choice of domestic versus offshore production. To help quantify those costs, the Reshoring Initiative website provides tools to help companies decide objectively whether their overhead will come down more than their manufacturing cost will go up when sourcing locally.