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TRENDS IN AUTOMOTIVE

RESHORED? Considerations for Locating Production

 

It isn’t just the cost of labor or the length of the supply chain. It’s complicated.

Brian Irwin, Managing Director and North America Mobility Lead for consultancy Accenture, says that “reshoring” or “right shoring” is something that gained a lot of attention some five years ago.

And he tells a story that people need to take into account as they consider it. Some years back, he says, pre-Accenture, he worked for a country—that’s right, a country, not a company—that was interested in gaining more work in the auto industry.

The country had automotive work. Low-value-added assembly jobs. “They wanted to get higher up the supply chain,” Irwin says.

So Irwin and colleagues created a group consisting of the government, the educational system, and OEMs to help identify where the country might get some higher-value-add jobs. It was determined that there was a gap in engineering talent, Irwin says, so there was extensive work done to develop it.

“They didn’t want to lose the assembly work that they were doing, but they wanted to get more involved in product development,” Irwin says.

Different Countries Have Different Considerations

But there was one thing that they weren’t good at and it was something that was unlikely to change: “We told them to stay away from anything having to do with aluminum because the cost of power in the country was not competitive in the global market.”

“There are elements you can change,” Irwin says regarding of bringing back or bringing in work. “But it can take a long horizon.” For example, engineering degrees don’t get earned overnight. He says the degree of government support needs to be taken into account. “When this is done well, there is a collaboration between the public and private sectors.”

Reshoring, right shoring or simply getting more work isn’t something that is a matter of a government mandate because there is more to it. (Think, for example, of the fact that energy was expensive in the country Irwin was working with and that aluminum is energy intensive.)

Reshoring, right shoring or simply getting more work isn’t something that is a matter of a government mandate.

THE SOURCING DECISION

Key Metrics to Take into Consideration

Irwin says that both automotive OEMs and Tier One suppliers have an evaluation equation that is calculated, one that has to take into account the following metrics:

  • Cost
  • Quality
  • Performance
  • Weight
  • Sustainability

“The sourcing decision,” Irwin says, “isn’t driven by one dimension.” Companies must score the criteria and weigh each appropriately. “That’s how decisions are being made.”

What’s more, he points out that there isn’t “one model that works across all componentry in a vehicle.” For example, if it is a low-value, high-labor component, then it very well may be the case that off-shore production offers a tremendous advantage.

“Other components,” Irwin says, “where the labor component is less manufacturing in North America can make more sense because of the importance of an uninterrupted supply chain and the ability to respond to changes in production schedules.”

There isn’t “one model that works across all componentry in a vehicle.”

Let’s Take Seats for Example ...

While the seat frame is a subassembly that can be stamped, formed and welded in a number of places, the end seat set is something that needs to be assembled “in fairly close proximity to the final assembly plant.” For one thing, seats are fairly large components and don’t lend themselves well to shipping.

For another, they must be shipped in sequence for specific vehicles (model, trim, color). What’s more, there can be sudden production schedule changes, so the production needs to be nearby. Still, Irwin refers back to the Cost, Quality, Performance, Weight and Sustainability and says, “Everything has to be measured against that overarching framework.”

 

Seats are one example of a fairly large component that doesn’t lend itself well to shipping.

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