“We have a lot of our products made in China because it is cheaper than having them produced domestically”. We hear that statement a lot, but is off-shoring really cheaper? For the next couple Mondays, we will look into this deeper with a three-part series using information provided by Eric Burkland of the Ohio Manufacturer’s Association.
Off-shoring is a huge subject and in order to evaluate the subject there are a lot of different things to review. Factors like region specific costs, quality, supply chain costs, operational costs, people/talent costs, travel time, fuel charges, etc. into the actual product cost. Many companies only look at the actual product cost and don’t take into consideration most if any of the other costs.
What many companies are realizing is that there is a possibility that many decisions to offshore were incorrectly made. This is becoming more evident in that many of these costs have increased dramatically from 2007 through 2010. For example many companies have seen their product costs increase by 73% and their logistics costs increased by 57%. Now keep in mind that this study is 2 years old, think of the additional costs today with the current fuel prices!
To discover what companies are doing to not only battle the continual price increases they are seeing from off-shoring but to also see how they are meeting customer demands Accenture conducted a survey of manufacturing companies. Accenture looked at why companies brought manufacturing back to the United Sates that had been off-shored.
The survey responses concluded that labor costs, proximity to the customer/market, skills of the workforce, taxes, and transportation costs were the most important in selecting locations for manufacturing operations. Indirect factors like government regulations, incentives, and others were still considered important, but by percentage, ranked less.
What companies are doing is reevaluating customer service requirements, total costs and operational agility. Companies are “rebalancing” operations with 61% reporting that they are considering more closely matching supply location with demand location. With this information, companies are considering actions with regard to supply chains and becoming more selective in their decision to off-shore.
And there are other challenges. Production skills, workforce availability, transportation costs, supply base access, capital required, and employment issues are all hurdles on the road to rebalance production and supply bases.
What have you experienced? Tell us your experiences with off-shoring and re-shoring. Do you think it is more competitive to be closer to your customer or to offshore because of low cost factors as listed above? Share your real world examples and opinions in the comment section below.