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Posted on : Monday 9th March 2020 04:15 PM

Is Automation Changing the Reshoring Equation?

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When China joined the WTO, U.S. manufacturing had to face off against incredibly low Chinese wages. U.S. companies closed facilities and moved them to China. The price of making something fundamentally influences where it’s made and by whom. The trade war between the U.S. and China is evidence of that.

Tariffs have some companies either talking about or already reshoring manufacturing. For instance, Panther Global Technologies, which makes crankshafts and piston pumps for lawn and garden tools, recently closed one of its two factories in China and moved some operations back to the U.S.

Tariffs are a trigger for reshoring. But I see the cost of labor and training as a bigger driver of where things get made. Panther is a good example. The cost of steel for its parts, which the firm buys from China for around $0.13 per pound, is offset by rising freight charges to ship the part to the U.S. But the overhead and labor costs to make its products are still higher in the U.S. For instance, the company’s labor cost is about $4 per hour in China versus $27 per hour for an American worker.

Panther is cutting down on U.S. labor costs, however, by investing in eight cobots that can collaborate and work alongside humans.

RCM Industries, which makes die-cast aluminum components for the auto industry, was able to fend off a challenge by a supplier from Mexico for a large project by turning to cobots. RCM’s cobots tend CNC lathes to help manufacture a consumer plumbing product.

I believe cobots can make U.S. manufacturers competitive enough to bring manufacturing back to the U.S. and scale operations. While that shift won’t bring back all the factory jobs lost to China and other countries, it’s bound to create construction, support and maintenance roles that wouldn’t otherwise exist. As artificial intelligence expands, cobots will gain the recognition skills to be even better workmates.

As we equip cobots to take on more complex assembly work, another barrier to using them will fall. But there are still some high hurdles. When you have a task that requires a worker, for example, to pick up and turn a workpiece and insert several, small pins into a series of holes, that’s not something easily done by a cobot. The gripper at the end of a cobot’s arm is what does that job. Engineers I’ve spoken with say building a dexterous gripper is a difficult mechatronic problem, requiring very small actuators and multi-directional tactile sensors.

As the price of cobots decrease, mid-sized and small manufacturers are ramping up their purchasing. Leith told me his Universal Robot cobots cost between $35,000 and $50,000. That outlay could be recouped in less than a year for a manufacturer otherwise struggling to find and keep workers.

“If you look at the cost to make most products, labor factors around 10%  of the total and companies have moved to China to save 50% on that 10%,” says Scott Hendrickson, founder and CEO of robot distributor and integrator Olympus Controls. With labor costs rising in China, that differential has decreased from 50% to below 20%, making it cost effective to reshore.

A couple of obstacles to reshoring manufacturing are these:  First, some countries in Southeast Asia can still produce textiles and apparel in a largely manual way, with even cheaper labor than China. Second, although more U.S.-based companies are showing an interest in automation, there’s still a dearth of skilled labor in the U.S. to fill manufacturing jobs in assembly, engineering and technology.

When will reshoring be cost-effective? That depends on the company, figuring in management cost, risk of country instability, or intellectual property risk along with labor cost. It might be the cumulative cost to a manufacturer of having its IP stolen by Chinese facilities that produce American products on one shift and then, to keep a line running, counterfeit the design on a second or third shift.

Tariffs didn’t alone trigger an interest in cobots and reshoring, but the trade war has certainly caused manufacturers to revisit their cost-benefit analyses. And I believe more of them than ever are considering a shift back home.


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