Twenty-five percent is an unacceptable failure rate for a crucial farm machinery part.
But that's what Lancaster County-based Pequea Machine Inc. faced when it tested gear boxes received from China: 25 percent failed due to substandard metals, owner and President Dennis Skibo said.
"That's not good when you're making a huge pile of gear boxes under warranty," he said. "After years of getting crappy quality, we decided to bring the gear box manufacturing back to the United States."
Pequea Machine manufactures farm equipment in Earl Township. Five years ago, it contracted to have its gear boxes for tedders — machines that fluff hay for drying — made in China to save some production cost, Skibo said. Two years ago, it began bringing the job back to the U.S. after receiving substandard quality from China. Now Pequea makes its gear boxes alongside the rest of the tedder and this month completed its first run, he said.
Pequea is part of a growing "reshoring" trend among manufacturers that have brought parts and products back to the U.S. to control quality, prevent supply disruptions and be closer to clients. Surveys suggest more companies will bring production back to the U.S. in coming years, and reviews of known reshoring suggest it's a significant part of manufacturing's recovery, supporters said.
Pequea Machine's first run of 80 gear boxes is just the start, Skibo said. A normal run of the parts is 200 units.
"And for about the same price as we were paying for parts from China without the reliability problems," Skibo said.
It costs about $900 to produce the gear boxes here in the U.S. and between $800 and $900 to produce them in China, he said.
Skibo touches on a significant issue in reshoring: When labor, transportation, stocking, customs, waste and other risks are factored in, the costs are nearly identical for many products, said Harry Moser, president of the Reshoring Initiative, an Illinois-based nonprofit that promotes reshoring.
Many manufacturers look at the near-term labor cost savings of producing overseas, and they look at transportation costs, but they forget the other factors, like rising wage rates, quality control issues and risks to intellectual property rights, Moser said. At some point, for some industries, the cost begins to level out, he said.
Reshoring Initiative offers companies a total-cost calculator on its website to research the economics of reshoring.
"We try to get enough attention to the subject so companies see there are people doing it, and they're seeing significant numbers … but they'll make the decision on reshoring based on the economics," Moser said.
The economics of the decision were good for more than just Pequea.
The gear box reshoring meant work for two other companies, Skibo said. Providence Township-based Buck Co., a metal foundry, produced castings for parts, and Illinois-based Circle Gear & Machine Co. Inc. cut the gears for Pequea, he said.
York-based Mantec, Central Pennsylvania's industrial resource center, has been aware of Pequea's example and wants to help other companies reshore if possible, Director of Operations Fred Botterbusch said. The efficiencies of local manufacturing clusters can be a great pull for many companies, he said.
"It's hard to operate a just-in-time manufacturing environment when your parts are coming from the other side of the world," he said.
Pequea's reshoring hasn't created more jobs, Skibo said, but he expects it could add as many as 20 in the future depending on sales, as well as what spinoff his orders have on other companies. For now, the existing workforce is making the gear boxes.
In an economy where state and national unemployment are more than 7 percent, jobs creation is important to many people. Reshoring job-creation prospects are better or worse depending on whom you speak to.
"I think it's coming," Botterbusch said. "I sense we're turning over into a more aggressive attitude."
Moser agrees. His group has collected hundreds of stories about reshoring companies, such as tech giant Apple and appliance maker Whirlpool. The jobs tally from known reshoring over the past three years is 50,000, or 10 percent of the 500,000 manufacturing jobs the U.S. economy created in the same time, Moser said.
"We say it's more than trickle but less than a flood," he said.
Others are skeptical about reshoring's ability to generate significant job growth. Small companies bringing production back is good, but it won't produce thousands of new jobs for Pennsylvania's economy, said David Taylor, executive director of Harrisburg-based Pennsylvania Manufacturers' Association.
"The thing we hope will be most transformative on manufacturing will be the natural-gas industry," he said.
With natural gas comes the petrochemical industry, such as the ethane cracker that Shell Chemical has proposed for Western Pennsylvania, he said. That could produce raw products for thousands of jobs making solvents, glazes and plastics.
Pequea's Skibo said he's confident from his discussions with other companies, large and small, that reshoring will have a significant impact in coming years. Either way, he's happy with the decision.
"You're going to see more and more of it," Skibo said. "It's a good feeling to bring back (production) and manufacture stuff yourself."