Thanks to external grants and internal execution, reshoring is becoming a big business for some smaller EMS companies.

At Firstronic, a Grand Rapids, MI-based electronics contract manufacturer, reshoring isn’t just a talking point; it has become the company’s major source of business growth. Over the past year, the company has won both onshore and offshore business. What is most significant is that the bulk of this production is being exported to other countries. Of the five programs ramping in 2013, four involve shipping product produced in Michigan to Mexico, China, Korea, or India. The sixth program involved moving work back from China. The total incremental export business that is currently ramping up will represent approximately $12 million in sales in 2013 and $30 million annually in sales longer term.

What is driving this phenomenon? The answer is twofold: a greater focus on total cost within companies outsourcing production and a strong focus on efficiency enhancements.

From an OEM standpoint, the driving focus is on cutting time in new product development and maintaining competitive advantage.

For example, Walbro originally selected Firstronic as a second source for printed circuit board assemblies. These PCBs are integrated into Walbro’s products and used by various lawn and garden power equipment manufacturers. The primary contractor was in Malaysia, but product development was in Michigan. Cost, lead-time and quality improvements led to the entire project being moved back to North America. Firstronic’s success on this initial project has led to additional business opportunities with Walbro, including assembly of an electronic fuel control module used in scooters. The largest end-markets for these new products are expected to be in emerging markets that have high-volume scooter sales, including China and India.

Economies of scale were a key benefit in expansion of an automotive control project with Dura. Models destined for China and India were combined with US production to utilize the same tooling and test platform within a single supplier.

Proximity to the development team was a selection factor on four products related to seat and shift controls from Kongsberg Automotive that ship to several locations in Mexico.

That was also a factor in AGM’s award of an LED printed circuit board assembly that will be shipped to China. Firstronic was able to support the development of a new product with local support throughout the design cycle and provide rapid responsiveness with flexibility.

In another example, the right mix of quality, cost and responsiveness led a German OEM with operations in Mexico to select Firstronic for a fuel pump controller and converter box that is shipped to Mexico.

However, it took more than responsiveness and proximity to development teams to achieve a competitive total cost equation. Firstronic’s strategy to reduce cost focused on cutting material costs and investing in automation that improved efficiency while minimizing administrative overhead.

Material cost is often 70% of total product cost. Firstronic leverages its supply base expertise as part of design for manufacturability/testability (DfM/DfT) process to develop recommendations that will lead to cost reductions. PCB fabricators may provide input on optimum layouts for boards, and test fixture suppliers may make recommendations on the best layout for test coverage. Suppliers also proactively provide updates on component lifecycle trends. This information is added to the overall recommendations the project team makes in its new product introduction process.

To minimize liability yet support variable demand, both raw materials and finished goods inventory kanbans are established. Suppliers agree to a bonded inventory based on each customer’s forecast and likely variations in demand. A finished goods kanban is also in place and is normally sized to cover one to two weeks of demand. Production builds to the forecast and pulls material on demand. In the event the demand changes radically, forecasts and bonds are revised.

The company also has automated many project management functions with an internally developed system. The Windows-based relational database system provides project team members with the ability to log on 24/7 to find out exactly what open action items need to be addressed. This “pull” system approach “force multiplies” the program management team, enabling fewer people to effectively manage more programs. However, it also has a “push” system element. The project templates that the team has created minimize the project setup activity and flag issues as they occur.

In short, the system is more diligent than a program manager alone would be because it immediately recognizes if an action or a missed deadline anywhere in the process is impacting the ability to meet the critical path deadlines established for the project. If that happens, it immediately emails the team members responsible for correcting the issue. The system also creates full documentation and a post-mortem history to facilitate process improvement.

The tool integrates fully with the company’s ERP system, Plex Online, a Service as a Software (SaaS) system that includes the ERP system, a manufacturing execution system (MES) module, EDI customer and supplier interfaces, and online quality data collection/reporting tools. The cloud-based tool enables customer and Firstronic personnel to access information remotely.

On the production floor, Lean manufacturing techniques are used to maximize flexibility, while ensuring quality. Core principles include:

• Select equipment that facilitates minimized setup and changeover time.
• Produce entire product families with a single setup.
• Schedule smaller batches and work toward minimal work-in-process (WIP).
• Focus on high yield to drive high throughput.
• Fixture to enable a variety of panels to be processed and scanned through the wave solder or reflow processes.

Firstronic has received state assistance in reducing overhead expenses. In recognition of its success in proving that “Made in USA,” and specifically, “Made in Michigan,” is a cost-competitive option, the company has been awarded a State Export Trade Now (STEP) grant via the Michigan Economic Development Corp.’s Pure Michigan Export Program. The grant helps offset marketing expenses. This is the second year the company has participated in the program. MEDC grants in 2012 helped offset the cost of trade missions to Germany and Romania, which resulted in project wins representing 50% of the 2013 export revenue. An additional grant-funded trade mission to Mexico also resulted in another $5 million of this year’s export revenue. The company has also become part of the West Michigan Medical Device Consortium (WMMDC), which provides a Michigan-based supply chain solution to medical customers.

Done strategically, outsourcing can be a highly cost-competitive option that preserves domestic jobs. Companies that evaluate the true cost benefits associated with speed of project launch, schedule flexibility, ease of communication and superior quality quickly recognize that nearshoring critical components closer to their core team saves money. In this case, the fully ramped business will create an additional 100 US jobs.

John Sammut is CEO of Firstronic; jsammut@firstronic.com.