Logistics is arguably the most impactful of the non-labor related factors for companies that choose to reshore because it potentially can be expensive to ship product from overseas.
Moser said it is important to consider total cost of ownership, which includes carrying the cost of inventory, traveling cost and the impact of innovation when you have engineering and assembly separated. He said once all factors are taken into account, the two costs get closer to equilibrium.
There's also the possibility of dealing with an unreliable company leading to other issues as Test Tools Inc. found out. The current ownership had inherited a decision to offshore production of two rubber end caps used in the assembly of its Block-Chek product to China.
Block-Chek is a combustion leak tester that quickly diagnoses a blown gasket, cracked head or block, pulled bolts and studs, and warped sealing surfaces.
The Chinese firm had become unreliable. Kristin Gray, Test Tools co-owner, said it got to the point where Test Tools couldn't rely on the company to deliver even within months and had to put its customers on backorder.
China would ship these products to the East Coast, then transport them by rail to Test Tools' facility in Seattle. Whenever they were backordered, Test Tools had to pick up the cost for the Chinese firm to air-deliver parts so Test Tools could satisfy it customers until the rail shipment arrived.
“It got very expensive because they would inevitably blame the China factory, and the shipments, then wouldn't pay to air-ship the parts to us,” Gray said. “Nobody would ever accept any kind of blame or responsibility. The fingers were pointing left and right. We were the ones who got stuck in the middle.”
Test Tools decided in March 2014 to switch production of the end caps to Yokohama Industries America, receiving its first shipment from the U.S. based non-tire subsidiary of Yokohama Rubber Co. in June 2014. While the cost difference in tooling was about 10 to 15 times more, Gray said delivery to date has been consistent.
Test Tools now owns the tooling of the rubber end caps.
“I don't think our customers noticed a big difference. They started getting what they were asking for,” Gray said. “But if we were constantly having to backorder over a long period of time, sooner or later your customers are going to go somewhere else.”
Other firms have reshored for similar reasons. The Reshoring Initiative analyzed the top reason firms gave in several hundreds of cases of reshoring, and freight cost was No. 4, inventory was No. 6, delivery was No. 8, and travel cost/time was No. 11. If all four issues were combined into a general logistics category, it would have been the No. 1 issue.
Paul said many firms tend to discover it is much more difficult to predict shipping costs, control inventories across the ocean and to get quality issues resolved in a timely manner. And some companies have had their intellectual property stolen in countries with laws not as strict as the U.S. or experience political instability and unexpected costs in dealing with the governments.
“When you start to add all that up, it can look a little less attractive to source overseas than in the U.S. even if there is a gap in labor costs,” he said.