Automation Helps Manufacturers Profit by Reshoring
Years of continued supply chain disruption and surging ocean freight rates have accelerated reshoring decisions. New automation technologies that overcome labor shortages and offset higher U.S. wages are helping to close the labor-cost gap and reshore more manufacturing to the United States.
As labor becomes a smaller share of the total cost of manufacturing, companies that once offshored due to cheap labor are beginning to favor production in closer proximity to the markets they serve. Investments in automation can help reshore profitably.
Freeing Up Human Capital
Japan, Germany, and South Korea each have more robots deployed per 10,000 workers than the U.S. But U.S. automation adoption is accelerating. The International
Federation of Robotics found that the robot density per 10,000 workers in North America jumped 28% in Q1 2022 compared to the first quarter of 2021, the highest rate of growth since records have been kept.
When companies automate repetitive or dangerous tasks, they can redeploy workers to higher-skilled positions, leaving the less-skilled work to machines—helping reduce workforce shortages. It’s important to note that automation helps developed countries more than developing countries. Developing countries’ key advantages are lower wage rates and available workforce. Automation reduces the labor hours required to produce goods and shifts the mix toward higher-skilled workers.
Jarrod Osborn, vice president of manufacturing and engineering at Wisconsin-based Waupaca Foundry told Modern Casting, “What we’ve experienced with automation is movement away from repetitive roles in the foundry, as well as better ergonomics and safety, and making it a more desirable job.”
A Profitable Selling Point
Automated processes offer better working conditions, with the most dangerous tasks performed by robots, making it easier to recruit and retain foundry workers. Automation decreases the potential for injury of the most important asset: employees.
Pennsylvania-based Buck Company invested in an automatic pressure pour system, new grinding cells, and more since January 2020. The safety record has improved, delivery is timelier, employee satisfaction is up, and turnover is down. Automating high-risk areas like grinding and pouring helped reduce injury.
Glenn Muzzy, Buck Company vice president of sales told Modern Casting, “As for our customers, our safety performance helps a lot. Take a look at our Disamatic with the autopour ... our safety record is just as good of a selling point. That speaks to our stability and long-term sustainability.”
Automation Investments Pay Off
Pandemic-related logistics problems prompted electrical and automation-equipment company Schneider Electric to consider localizing more manufacturing for both itself and its customers. Pre-existing investments in automation and software enabled them to shift more work away from China without significantly increasing operating costs.
The Schneider “smart factory” in Lexington, Kentucky, now makes 70 to 80% of the parts needed for its products in-house. The Lexington plant is so productive that it now ships some parts to Schneider’s Mexico facilities instead of the other way around.
“We now have the technology and resources available to expand and efficiently produce more locally. By modernizing and localizing our operations, we can better serve our customers and minimize the risk of interruption when we face the challenges of global economic changes,” said Annette Clayton, CEO and president, Schneider Electric North America.
Reshoring and Achieving CO2 Neutrality
The demand for foundries to reduce emissions to achieve CO2 neutrality is becoming increasingly stringent. The negative environmental impacts of offshoring include higher carbon emissions and pollution from factory production in less-regulated developing countries with more coal-intense electricity and a higher carbon footprint from long-distance maritime transport. A Reshoring Initiative study concluded that sourcing aluminum die castings locally, instead of importing from China, reduces CO2 emissions by 25 to 50%.
The obvious approach to achieve CO2 neutrality is to manufacture products locally. Environmental Social and Governance (ESG)-focused reshoring increases U.S. job opportunities, helps reduce global emissions, and puts money back into local hands across the U.S. economy.
Makarand Karanjikar, senior vice president of supply chain deployment at Schneider Electric said, “Due to the proximity of the supply chain network, reshoring is expected to positively impact the scope 3 carbon emissions from supplier transportation and distribution.”
Major Bottlenecks to Automation Adoption
The hype about automation hasn’t convinced enough manufacturers to take the plunge beyond picking, packing and movement—even if money has been set aside for it—as they worry about the cost, scaling, their lack of knowledge/experience, and job elimination, McKinsey analysts write. Companies should determine business-critical priorities that are key value drivers and examine technologies that can help them achieve those objectives. Vendors should offer solutions that are cost efficient, rapidly deployed, reliable, safe, and scalable.
Pittsburgh, Pennsylvania, plans to invest $63 million to launch the Robotics Factory, an initiative that will create, accelerate and scale robotics startups.
“Not only will the Robotics Factory programs address existing problems experienced by industries that can be solved using robotics and automation solutions, we plan to also provide the resources and funding that are so critical to emerging companies,” said Ven Raju, president & CEO of Innovation Works, a regional partner in the project.
Jump Start Automation Adoption
We need to automate as rapidly as possible, given economic and manpower constraints. Companies should stay focused on sustainable business models, making decisions based on total cost analysis instead of price, and using automation to close remaining total cost gaps.
The free online Total Cost of Ownership Estimator guides companies through a comprehensive system for recognizing and summing all costs and risks associated with offshore and domestic sourcing.
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