Total Cost of Manufacturing Overseas

“The U.S. is a lot more competitive than people realize,” he says. “Over the last several years, firms got caught up in the outsourcing trend without thinking through the costs.” Harry Moser in yesterday’s Bloomberg Business Article.

Are you evaluating the total cost of ownership when you’re manufacturing is overseas? Do you include travel costs, intellectual property risks, or the ability of products being delivered directly to your production floor just-in-time as opposed to inflated inventories because of large order quantities? (Think cash flow)

I believe companies are beginning to realize the total cost impact that offshore manufacturing has on their bottom line. Many companies keep their accounting (and mindset) in silo’s or cost centers, and they lose track of items like travel cost to visit suppliers or the increase in logistics overhead to the unit price. This occurs when the accounting group consolidates the cost statement across the complete enterprise and the offshoring costs get blended with other cost categories.

There are other factors outside of direct costs that need to be evaluated as well, such as the opportunity for innovation that is missed because engineers are not able to easily talk with the people on the shop floor.  Many times these people have great ideas for the product, and without that communication these ideas are lost.

There are some tools available to help with this type of evaluation, the Reshoring Initiative has the Total Cost of Ownership Calculator.  I listened to a webinar in September of last year in which Harry Moser discussed his efforts with the Reshoring Initiative and its mission “to bring good, well-paying manufacturing jobs back to the United States.”

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