Why Reshore Manufacturing? It's The Only Way To Avoid Defective Pirated Parts

Tyler Durden's picture

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

Reshoring the entire supply chain so it can be trusted is the low-cost solution once you add up the total lifecycle cost of a hopelessly counterfeit global supply chain.

There are two basic arguments against bringing manufacturing that was transferred overseas (offshored) back to America (reshoring):

1. It's too costly

2. The supply chain is now in China/Asia and it's not possible to source the parts needed to bring manufacturing back to America.

I beg to differ on both counts: nothing is more costly and destructive to profits than defective, pirated parts made overseas. Counterfeits made to look like legitimate parts are highly profitable to the counterfeiter and immensely damaging and dangerous to the manufacturer and end-user.

In a global economy burdened with massive overcapacity, the only way to maintain profit margins is to lower costs by cutting corners: in effect, defrauding customers by delivering deceptively reduced quantity and quality, and/or defrauding the end-producer by shipping low-cost counterfeit parts that mimic legitimate products.

Gordon Long and I discussed this systemic reality in Bankers Crippling the Global Supply Chain (34:50).

Bloomberg/Businessweek recently outlined the scope of fake parts and the impossibility of rooting them out of global supply chains: The Dangerous Game Behind Fake Ball Bearings:

Everything from shoe polish to medication to car parts is pirated. Estimates of the scale of the problem range from $461 billion -- 2.5 percent of global trade -- the Organization for Economic Co-Operation and Development says, to some $1.8 trillion, according to calculations last year by the International Chamber of Commerce. And while makers of luxury goods -- among the most prominent counterfeited products -- lose profit from the trade, there's little risk to consumers. In the case of more mundane stuff like bearings, forgeries can be dangerous as well as costly.

"Many people believe piracy is limited to handbags and other similar products, but the more serious issue is industrial companies," said Ann-Charlotte Soederlund, co-founder of the Global Anti-Counterfeiting Network, an umbrella organization of fake-fighters around the world. "The effects can be immensely larger than the consequence of a fake handbag."

Knock-off building materials have been shown to catch fire. Counterfeit electronics have caused military equipment to fail. And SKF says a sham bearing in a swimming pool pump sparked a fire that burnt a house to the ground.

Forgeries of its products typically originate in China, often from factories where legitimate competitors make their products, Aastroem said. Workshops there buy unmarked bearings, stamp them with the SKF brand and put them in packaging designed to look genuine, the company says. From China, the bearings are shipped worldwide to customers who often believe they are buying legitimate parts.

How expensive are defective products returned as a result of counterfeit parts failing? How costly is the damage done to brands that depend on quality for their pricing power? How expensive is it to field hundreds of quality-control personnel and investigators, all of whose efforts are the equivalent of shoveling sand against the tide?

Gordon and I discussed the practically endless list of costly products that have to be replaced or repaired (often more than once) due to defective/ failed parts.

What has been commoditified in the global supply chain is not quality or reliability-- what's been commoditified is pirated, defective parts that look exactly like legitimate parts.

There is a solution that's a lot cheaper than shoveling sand against the counterfeit tide: bring the entire supply chain back to America where production can be verified and the parts tested and ID'd/ labeled with technologies that cannot be counterfeited as easily as the parts.

Come home, America, is not just a political slogan: it's simply good business.

If you want to lose your brand, your pricing power and your customers, by all means, rely on a global supply chain filled with defective parts that cannot possibly be detected. Reshoring the entire supply chain so it can be trusted is the low-cost solution once you add up the total lifecycle costs of a hopelessly counterfeit global supply chain.

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ParkAveFlasher's picture

On that note, Home Depot sucks!

Joe Davola's picture

Yeah, no one here would ever cheat like that!

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) Joe Davola Nov 23, 2016 12:30 PM

I still have a (very ample & reliable) collection of tools (wrenches, sockets, extensions, drills, sanders, saws, etc.), MADE IN USA, from the 1950's, that my dad handed down to me... FFS ~ the only thing I'm missing is the 1972 Gran Torino...

 

Half of the 'zipperhead' made shit that I've bought in the past 10 years needed to be replaced.

 

GET.OFF.MY.LAWN.

One of We's picture

My grandfather handed down a variety of his dad's tools that included a set of Plumb wrenches and a Plumb 1/2 ratchet.  All of these have the tightest tolerance of any tools I have and they're probably 100 years old.  My '91 Suburban is getting pretty rusty but still runs like top and I've only had to change oil, breaks, plugs and wires.....

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) One of We Nov 23, 2016 12:39 PM

1991 F-150  XLT Lariat 4 4x4 with 2 gas tanks here... Still purrs like a kitten

Mr. Pain's picture

Having been an auto mechanic for forty years I can attest to the faulty parts finding their ways onto new cars. I worked in a rental fleet made up of the latest and not so greatest of vehicles across the spectrum. 

I have replaced rear axles and bearings on the Ram truck in the last year that burned up before the truck hit 1000 miles. (recall on this. )

Nissan, front and rear bearings go bad before 3000 miles.

GM products, bad bearings.

Ford, can't seem to make a fuel pump right. Been many recalls on this issue of necks breaking off.

 

I could go on and on but you get the point. IMHO, the stuff being made is hiding inflation through the use of junk materials. There is no quality control in these companies, there is just the motivation of massive profits. In the end they themselves will fail.

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) Mr. Pain Nov 23, 2016 2:45 PM

Make 'em & BREAK 'em (is the Clinton ~ Krugman legacy)

roddcarlson's picture

As an electrical engineer I could barely stand to see it, the bosses would take the entire design including the firmware and software along with schematics, not just the BOM (bill of materials) and the PCB layout and give it to the Chinese manufacturers. I was flabbergasted that management could be that short sighted and stupid, but they were indeed. Most those companies are now out of business. Which brings back the major problem really as most these companies that went to China are shells of their former selves if even still solvent. I doubt they have the leverage to return the manufacturing back to America even if they wanted to at this point.

I'll be honest the only ones who can return America back to her former manufacturing greatness are the engineers and the main street American. That's really hard to do with the government counterfeiting and high costs of living from being the reserve currency. Add to the fact that America loves her housing bubbles which raise the cost of labor to a large extent with no material gains in living standards for the workers. We've really became a banker, financer, landlord extractive nation. If you want manufacturing here you have to stop the exploitation of increasing costs of living, that includes bringing in millions of foreigners and subsidizing them so they compete for housing with the natives. Since that isn't happening the majority of Americans really don't have enough left from their paychecks to fund any kind of investing in themselves by production. I was fortunate to find a little oasis in Arizona where the cost of living was affordable and the people were handsome and smarter than average. But how long can that hold with the government onslaught of bringing in every bad actor from abroad, even these rural enclaves of once sane US image are getting flooded. Once quiet white suburbs are replaced by graffiti artists that roam and gang, the desire to relocate due to cheap labor and housing kind of goes wayside due to the extra costs of entropy.

Again if the big companies actually had the capital to relocate they'd probably have already done it. Unfortunately a significantly large amount of boomers killed that golden goose years ago by stock dividends and repurchasing by debt. The main street American (including engineers) are 10x leveraged into house debt especially in San Jose, impossible to quit their mediocre slave jobs to start thriving enterprises for themselves. Don't get me wrong, manufacturing will eventually come back here but it's going to take a momentous collapse for the cost of living to get affordable and the assets to be recycled to the productive classes. It may never happen if we keep letting in foreigners that add more burden to the tax structure, while subsidizing them with cheap loans and welfare money.

The good news is that China is still going to collapse as well. I really don't see anything long term holding there with their command and control economy, but they still are sitting pretty right now owning capital and the real industrial machinery. As a business owner I'm really in no mood for trade barriers as a significant 99% of my parts come from overseas. But on the other hand, China is huge command control dump and trump operation. It's a state sponsored capital control environment of doing as the Rockefellers did at destroying the competitors simply by dumping until capitualization, that it's state sponsored with a government printing press and slave labor cannot be sane environment for "free market" competition which doesn't exist right now.

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) roddcarlson Nov 23, 2016 1:36 PM

^^^that^^^

Manipulism's picture

and snowflakes dont like (and can do) handywork.

The knowledge is lost.

 

roddcarlson's picture

It certainly has something to do with our problem as a nation of being short attention spanned. The book "Dying of Money" talks about how government counterfeiting produces an immoral society. The millenials I know started out a bit slower accepting responsibility, but each generation has shown it self taking more years to become realistic than the previous, with exception to the boomers and X (which was inverted). Overall I don't bash the millenials except on a one on one basis, I think generally speaking young people start out narcisstic and stupid and handsome in appearance and get more benovolent, structured, and less physically prime with age. But overall I think this has more to do with rotten government and it's easy money distorting reality and cost of living such that desperation and crookedness of satisfying desires of something for nothing become more and more prevalent with each degenerating generation passing. The cure for the ailment is less easy money, and more rewarding for true industriousness. Like the above statement the solution has to do with getting government out of the business of theft by various means and its redistrubition, versus the current stance of making life more miserable while raising cost of living higher to support some extractive bubble that moves wealth away from main street to wall street. That same bubble moving wealth away from productive people, to marginal people (even if not wall street but rather immigrants for example).

StychoKiller's picture

Okay check this out:  The wife and I had to buy a new microwave oven because our old one (Sharp Model R-9330), which we received as a wedding present in 1984, finally died.  The new one was bought in September, two months later, the touchpad developed a couple of small cracks under the '1' and '0' keys -- totally under warranty.  I emailed the manufacturer and received an RMA (Return Material Authorization), along with the following instructions:

Cut off the power cord and either send it to us (or email a photo of it), along with the receipt and they would refund the purchase price.  Before contacting them, I tried to locate repair parts for it.  The NSA must deem that particular microwave manufacturer a state secret, because there is virtually NO information on them.

I told them:

1.  We'll keep using the oven until Labor Day 2018.

2. We'll donate it to a local charity and get a tax write-off.

3. We'll then buy another new microwave.

4. We'll never buy another product from that manufacturer again!

Right now, I'm still waiting for a thermal cutoff fuse to repair our original sharp microwave.  So, next spring after the weather gets warm again, I'll be repairing a microwave oven that's over 32 years old.  If I'd known that the replacement microwave didn't have any way to get repair parts, I never would have bought it.

"Planned Obsolescence" is the worst part of the "The Consumer Society!"

Kayman's picture

America was sold out for peanuts by corrupt corporations and criminal politicians. Free Trade has the same validity as fucking for Virginity.

roddcarlson's picture

I'd be for free trade, if there wasn't any governments that could rig the price of money by even the slightest manipulation like say interest rates or by quantitative easing. Though I don't think it's possible to call free trade with a nation that actually physically takes men like personal robots and uses them as slaves.

Slave shops are not free trade, because free enterprise is about freedom of all actors of the nations involved. That is where I have a hard time with economist that argue that even though they know we don't exactly have free trade, keep arguing for more of the same. It's getting harder for them to argue their mute points as America is turned into a third world hellhole, but they still want us living in their bubble and pretending this vast experiment is working out for the good.

I'll agree it's working out for third world countries, but not Americans who see both their economic mights and freedoms crushed. What should one expect on such an unlevel playing field really, but that the two classes of people coming to some middle ground. The higher paid country becoming poorer in capital, while the less wealthy country getting wealthier. It's called averaging and though it's true that the world wealth is getting richer on average, there is a slight problem as economies require critical mass to keep the fire burning. That is if the fire spread too far and too wide it stops having enough heat to ingnite more fuel. A certain wealth of excess is required to support a true free market, where parents can save and afford to send their kids to engineering college to keep civilization propagating.

All that of course has been forgotten by a simple minded people that only can see widgets at less price, not seeing that the intellect of capital is drying up because neither country now produces enough critical mass to afford real capital to develop. Sure China is a bit more industrial, but it's not going to become San Jose (least in my lifetime) because that takes a certain freedom mindset amongst Silcon Valley critical mass peoples that job hop between companies. So all this crap talk about Chinese economy is really pointless, the average Chinese are still afraid to speak their minds on any subject so that's not going to sponsor a Silicon valley mindset (laughs). It's all copy and command control, meanwhile our young don't have the capital or will to replace those of us in Silicon Valley that will eventually disappear. The world is getting dire because of free trade in name only, that isn't sustainable in the long term. And I'm not blaming individual countries in the manipulation and destruction coming, I'm blaming all of them at once and they will all suffer long term because of it.

cheech_wizard's picture

As a fellow electrical engineer (that name covers so many things these days) that is worth two thumbs up.

 

cat writer's picture

Great reply, but you forgot to mention the 'healthcare' racket. That is the financial killer that will eventually bring America to civil war.

Paul E. Math's picture

"Add to the fact that America loves her housing bubbles which raise the cost of labor to a large extent with no material gains in living standards for the workers."

Bingo.  I've been saying this for years.  We could be so much more competitive if housing costs hadn't been purposefully raised.

Imagine how much less you could pay someone if their housing costs were half what they are now, which is where they should be.

Now also imagine how much better labour would fare v capital expense for 'labour-saving' equipment.

That's a large part of the reason for the low labour participation rate right there - capital has been favoured via low interest rates and high housing costs.

38BWD22's picture

 

 

The above article referenced a Bloomberg piece on counterfeit SKF bearings (in Kenya in this case).

In Peru there are lots of fake bearings as well.  The brand most copied seems to be Japanese Koyo, very respected as they make most bearings for Toyota cars.  They (Peru) busted up a counterfeit Koyo ring a few years ago.

But, the counterfeiters even make fake Korean bearings (which hurts us).  They import unmarked bearings from China, and paint on the bearing number, brand and "Japan" (or "Korea").  All of that can be done in a 10' * 10' room.

It's a real problem.  

Imagine flying on a low-budget airline that is not picky about where they get their replacement parts...


just the tip's picture

or their schedule 'C' and 'D' maintenance.

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) 38BWD22 Nov 23, 2016 1:49 PM

U got that right Do Chen... [it's all CHEAP fun & games until it breaks & people die].

 

FFS ~ My worries pale in comparison to yours... I'm not killing people if I wear out or snap a tool in my own garage...

 

Meanwhile ~ Arthur Fucking Blank already sold Home Depot, and spends his time pretending he's important on the Atlanta Falcons sidelines & trying to not let his booger filled nose get in the way of chowing down on the discount gefilte fish buffet...

38BWD22's picture

 

 

Peru is poor, so low price is important for many, many people.  For many there, it really is "Precio Nada Mas".

Yet with bad streets (and worse driving, LOL) in Lima AND poor roads in the Andes (guard rails, que son esos?) I don't even like to think about what would happen with bad brakes, bearings, steering components...

 

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) 38BWD22 Nov 23, 2016 2:29 PM

I'm all for a MULE & 40 acres...

 

But these days~

 

1. That's prolly rayciss'

2. I wouldn't want to cut into your profits &/or margins (unless you could blacksmith the excess bearing inventory into 'shoes')

 

;-)

Kayman's picture

Chinese bearings are complete crap. With bearings, it costs more to take them out and replace them, than what the bearing is worth, so if you are putting in Chinese bearings, you are an idiot or a thief.

38BWD22's picture

 

 

In Peru the economics are a little different.  Wages are very low, labor is cheap.  When it's "Precio Nada Mas", there is real incentive to use a cheap bearing, especially on an old car in the city.

Still, were I living in Peru, I would only use OEM-quality, as I value my life.

JRobby's picture

Agree, the quality of aftermarket parts is poor. Factor in the time wasted doing it twice and it's a no brainer.

just the tip's picture

you did mean brakes, did you not?  breaks on a car/auto are not good.

my '90 jeep cherokee gets it's oil changed every 3000 miles.  uses less than one quart.

JRobby's picture

Good vehicle, easy to fix. Engines can go a long time with good oil changes.

 

Belrev's picture

With all the talk of lowering the cost for consumers all the cost savings went into the pockets of 1% and consumers get stuck with staff that is low quality and does not work.

SubjectivObject's picture

China Syndrome:  It's all in the look.

Quality generally corresponds with extent of QA/QC.

QA/QC tends to fall from the off-shoring balance sheet.

New_Meat's picture

Au contraire, meathead.

Quality always corresponds with the mindset of management and the people actually doing the work.  <-- Deming and Crosby and etc. all agree with this.

fify

- Ned

CNONC's picture

I recently bought an old house out in the boonies.  It came with a 1957 GE refrigerator, which still works perfectly.  Modern product engineers would look at that and see an engineering failure.  Why design a machine to last 60 years, when it will be out of style,and thus replaced, in 10 or 15 years? There is some logic to that, but to a large segment of the population that is not motivated by fashion or appearance, that is a grave disservice.

On the subject of counterfeit products, I remember about 15 years ago, maybe a little longer, there was a rash of tower crane accidents in the US.  A significant number of those failures was traced to anchoring bolts, which are designed to be torqued only once, and which are monsterously expensive, being reconditioned by a company in Mexico and sold back into the US market as new.

 

daveO's picture

In 1971 debt money replaced gold money. Now, you get another credit card, or line of credit,  to replace your current POS refrigerator. Debt slavery replaced quality and hardly anyone noticed. Old timers in my family kept preaching to the baby boomers that they were cutting their own throats with credit and, especially, with foreign-made products. They were ignored. 

//
JRobby's picture

More criminal activity 

truthynesslover's picture

And that was the least of the problems....

Theta_Burn's picture

Yep.

Harbor freight=utter fucking garbage. other than things you can't destroy, like hammers, so, beware.

...I did have a 73 Gran Torino..

 

Mr. Schmilkies's picture

I had a '72 Pinto.  American made baby yeah!!  

Joe Sixpack's picture

This is a symptom of the time since WWII that the US was forced to react to foreign influences (i.e., oil shortages). 

just the tip's picture

i got a sears table saw from 1956.  original motor.  upgrade blade of course, i don't think they had carbide tipped in 1956.

A_DAB_will_do's picture

You should include hammers as well.  A good framing hammer has a high carbon steel head that's been properly heat treated for optimal strength and toughness.  Not to mention, a solid handle that is securely joined to the hammer head.

 

Harbor Freight hammers are often lacking one or more of these key features...Use at your own risk...

New_Meat's picture

Listen to this with a Down East accent:

"Ayuh, this ax heya is the best one I've evah had.  Replaced the handle twice and the head once.  Best ax evah."

CNONC's picture

I like Harbor Freight for a few things.  I need abasic sheet metal spot welder, but I only make, maybe, 200 welds a year with it.  A quality machine would cost $600.  The Harbor Freight version works almost as well, but costs $159

Kayman's picture

Chinese hammers?  They mushroom like soft butter.  Same with chisels and punches.  Mao taught them how to bulk up steel output by loading it up with silicon and slag.  

Antifaschistische's picture

It has taken decades to get to where we are today.   This place will probably take an equal amount of time to unwinde....but I COMPLETELY agree with Holy Hand Grenade.

If you know anything about metal...and I know a little, but I talk to guys that know a LOT.  You know that there is no axe you can buy off the shelf today at any price that is superior to an axe from the 50's in metal content.

So...can we start small!!!   Can Rockford Illinois start rehiring some of their metal guys (no offense intended to the ladies) and start making some high quality tools out of high quality steel!

I go through a LOT of tools...blades, cutting wheels, drill bits, etc...and it kills me that stuff is so cheap.   I have changed some of my tools to accomodate rapid blade replacements because I go through them so fast.

...and I have nothing against China.  I love traveling in China...but they are so obessed with getting rich quick that they will slash the quality of everything....and American's are stupid and fall for the cheap stuff and it has driven thousand of great small companies in the US out of business.

Antifaschistische's picture

by the way...Mr. Trump can start with taking the American Consumer to the woodshed like he did the Reporter Elite.  Forget "protectionism"...tell the US Consumer to wake up and stop buying crap, then let them market forces take care of the rest.

froze25's picture

An Axe made in Finland

Our products use the Key Flag Symbol. The Key Flag Symbol can be granted to a product that has been manufactured in Finland.

http://www.leveraxe.com/en/info

Kayman's picture

When the likes of Chinese Walmart and Home Depot only sell Chinese crap, how can you blame the American consumer ?  

It is only this incessant beating of the drum about "Free Trade" that has allowed these corrupt corporates to get away with this treason.