Mexico – The New China

(December 3rd -2014) Jim an I were discussing the recent trends to re-shore products back to North America from SE Asia. I listed to all of his reasons for this trend, agreed with his claims, then responded with, yes, you are right on everything you are stating, yet you forget that the Communist does not allow YouTube, so much of our tribal knowledge stops at the firewall. That can not be measured. Here is a bit more on what I am finding.

November 20th I returned from a fast track trip to China where I worked as a consultant. The assignment was to debug a production line that had major yield issues, make recommendations, and work to get 600,000 assemblies to the USA for Christmas. Unfortunately for my customer, the conclusion, and the recommendations I drafted was this; redesign the part for automated handling, reduce tool cavity count and introduce a lights out manufacturing line over the next 4 months. Not only could we increase yield by 30% by removing human error, we could reduce the part cost by over 200%. Volume capacity would increase 400% with some simple automation.

I started traveling to SE Asia back in the late 90’s while working as a vendor to the semiconductor FABS of Taiwan, Korea, Singapore and Japan. My small technology company figured out how to automatically teach and calibrate robots with sensors, some light electronics and some very cleaver software. We sold MicroTool was sold off to (BRKS: NASDAQ) in 2001. Years later, I found myself developing software in India, and back on the ground in China building consumer products. I watched Asia grow up first hand. It was alarming, yet very exciting at the same time. I remember demonstrating my robotic calibration equipment at a Hundia Semiconductor plant was going up in a rice paddy on the boarder of North and South Korea. There was certainly a lot of go, go, go, yet the methodical processes I learned at Intel and IBM were lacking.

My take on all this is. While Asia has become a hotbed for low cost manufacturing, there seems to be more reasons to automate in the West than building out a new line in China . “Let’s face it, our homelands developed most of these technologies to begin with.” America and Great Britain, and Mexico are poised to emerge back into the global manufacturing sector with costs well below the emerging nations through the exploitation of automation, system controls, and raw energy costs.

Your ROI on an Automation Investment: Human replacement automation costs have dropped to a landed price point of $23,000. If you amortize of this equipment with a 12 month depreciation, schedule you get the following hourly rate. (($23,000¸(8765.8 hrs/year)) = $2.62/hr. BCG predicts that Chinese wages are to be $6.31/hr. by 2015. Integration has gotten much easier due to wireless networks and ease of programming is fast and cost effective with a work station from Office Depot. Automation has developed more tools to do more human tasks. And my favorite, as a former business owner with employees, automation does not require benefits and precise repetition reduces human error.

While the US is poised to harvest more of these projects due to our low energy costs and innovative behavioral relationships with these new technologies, several remarkable events are taking place.
With the US wages holding low against the Chinese Yuan, many products now have a spread of just a few points through automation. A few years back, I helped develop automation lines that were installed in Juarez MX. The 2014 Boston Consulting Group report (How Shifting Global Economics Are Creating an American Comeback) now that Mexico costs are significantly lower than SE Asia due to the open boarder policy that North and Central America has created with NAFTA. Jim’s team at Group50 believes that the spread is even greater when you consider travel, system controls, government policies and yes, the lack of Youtube as portal to knowledge.

Exciting times ahead! Many of us 50+ year old manufacturing experts that grew up in the trades now need to retrain our youth to design tooling, automation, and become the next innovators of our factories here in North America. As we take back more jobs from the low cost factories of Asia, I say, I’m all in, lets get tribal knowledge back into the hands of our youth by making the motors and sensors hum and churn out today’s’ products and tomorrows ideas.

OH, and a hotel in Shenzhen China is now over $200/night. I never got across the boarder on this last trip. It’s funny to stand at the Chinese Consulate in Hong Kong and get pushed back after my passport had gone in and out of the country for years. Mr. Conarro, you did not collect your magic token at the airport, so go back to the airport if you want to get into China. After 5 times in and out of the Embassy, I decided to go take videos of the protesters and call it a day.

Go Group50!

Regards

Pat Conarro
Innovator/Automator/Tooling/Technologies