A growing number of medical device companies are deciding to return production to the United States after reshoring it in years past. Here's why.

Qmed Staff

In recent decades, China was able to capture a tremendous amount of business from the United States. In essence, this was because Chinese companies were able to undercut domestic manufacturers in terms of cost. Many companies were willing to put up with logistical headaches of having products shipped halfway across the world because it made financial sense--at least on paper.

Now, the tide seems to be turning. Last year, the United States gained 10,000 jobs as a result of reshoring, according to a report titled "Reshoring Initiative Data Report: Reshoring and FDI Boost US Manufacturing in 2014." By contrast, a decade ago, the country lost some 140,000 jobs to offshoring of manufacturing.

While some companies have had good success by offshoring operations like molding to China, others have been less fortunate. There have been many companies who have lost precious intellectual property. In the automobile sector, Jaguar, for instance, recently had one of their Land Rover models copied by a Chinese company, which will retail in China for one third of the price as the Land Rover vehicle.

Many medical device companies that have outsourced production to low-cost destinations have run into similar headaches. And that is helping to drive those firms to return production to the United States.

In the following Q&A, we speak with Mark Fuhrman, director of sales and marketing at C&J Industries Inc. (Meadville, PA), a company that has helped numerous companies reshore molding and tool-making operations to the United States. (The company is exhibiting in booth #1574 at MD&M East.)
 

Qmed: What are the main reasons you think companies are returning production back to the United States?

Fuhrman: Companies are returning production back to the United States for the same reason they left in the first place: profitability. The value proposition of off-shore manufacturing has been greatly reduced by rising foreign labor costs, supply chain inflexibility, and IP concerns. Some of our customers are now facing the reality that although shipping and freight costs may not be embedded in their standard cost system, they are coming to realize that transportation is a very real cost. Some are absolutely shocked to see the impact of landed costs from overseas.
 

Qmed: I once heard of a Chinese molder that got angry with a U.S. company and ended up putting its tools in a barn. Are you seeing many companies interested in reshoring that come to you with negative stories like this? If so, would it be possible to list an example or two?

Fuhrman: When dealing with foreign tool builders and molders, if a U.S. company decides to move their tooling, they have to know that their assets won't be shipped until paid in full. I can't speak to any unusual stories about tools being held ransom in some unusual way.

General storage conditions in many Chinese plants are not climate controlled--so rust and corrosion is fairly common to see on returned molds.

If you haven't physically been to China, it's difficult to describe the variety of conditions that exist in their tooling and injection molding facilities. Just as there is quite a variety in U.S. manufacturers, the range in China is quite a bit greater. The first time you visit a Chinese tool builder or injection molder, I promise that you will say, "Wow!" about 20 times a day. The best way to describe manufacturing in China is: The Industrial Revolution meets the Wild, Wild West.

Qmed: Many U.S. companies are bringing their molding and tool production back home after offshoring it to low-cost destinations like China. How do you see these Chinese molders reacting to this trend?

Fuhrman: Some of our customers still see the benefit of having tools built in China, but have the molding done in the United States. So what we've seen happen is that the Chinese mold builder is more than happy to take our customer's money, build a sub-par tool and ship it to the United States. Now as far as the customer is concerned, they paid for a "good tool." But what's happened is that the Chinese supplier realizes he's being cut out of the production side of the business (i.e. molding the parts)--so they are building very cheap tools that "look good" but are well below their own standards. This results in a lot of ugly conversations with our customers because they think they bought a good tool. But this is what happens when customers try to get the best of both worlds, they end up with the worst of both. They unknowingly have created an environment where there is no motivation for the Chinese supplier to build a good tool and then when those tools arrive in the United States, there's a lot of noise and frustration from the U.S. supplier about not being able to use a sub-par injection mold.

To be truthful, this is the heart of why we dove into the Tool Re-Shoring video series. This isn't about bashing foreign competition; it's about recognizing some fundamental changes in the marketplace and how to proactively manage those changes.

Qmed: What are these firms doing to make tools that "look good" but are actually subpar?

Fuhrman: It's common to use P-20 steel for lower-volume production tooling. The Rockwell hardness on these tools typically are in the 28-32 HRC range. We have received tools that have slide components and core or cavity details that don't even register on the Rockwell scale. This isn't being done accidentally. But unless you measure the hardness of each component, there's no way to know the hardness of a piece of steel. These tools will hold up for an initial trial run, but within several hundred to a thousand shots, the tool is seized up and then the heartburn truly begins. The last call a supplier wants to make and a customer wants to receive is: "Your tool is down."

Qmed: Why don't Chinese suppliers improve the way they do business? One would think they would realize they are undercutting themselves. Are there signs of improvement?

Fuhrman: They have and they will improve, or they will go away like many U.S. manufacturers did in the 2000s. The time to make easy money in China is fading away. The same market pressures that caused U.S. manufacturers to improve are coming to bear on Chinese suppliers. The smart ones will see the future and make the necessary improvements. There are definitely some very strong and outstanding suppliers in China--but they are not in the majority.

Qmed: What is standing in the way of reshoring to the U.S. increasing even more?

Fuhrman: The momentum to move business offshore was the result of many CEOs and board of directors looking at their bottom lines in the early 2000s and seeing an easy way to reduce manufacturing and tooling costs while improving margins. There is still a bias and resistance to change for some companies to think that it could actually make sense to reshore their business. Some of our customers have looked at their total acquisition costs and have figured out that reshoring does make sense. There are other legitimate reasons to continue manufacturing in China. China's growing middle class represents a huge opportunity for global OEMs. The best way to get a slice of the largest consumer market in the world is to be manufacturing, distributing, and selling product directly to the Chinese market.

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