Then there’s the burden of tariffs and the extra levels of inventory and finished goods to make up for the increased shipping time.
If you choose to shift manufacturing to China, you can add even more inventory and shipping costs. Then there’s the higher ocean-freight burdens due to homeland security regulations that can result in shipping delays. If you avoid this by using air freight, your costs go up. With rising energy prices, you lose even more of the savings from cheap labor. Then there’s the hassle of designing a product so its components can be procured in Asia—either that or you carry the added expense of shipping your components to China.
Another alternative is to figure out the total cost of remote manufacturing before shifting your plant overseas. If you’re using a contract manufacturer, you may be able to pinpoint the costs of overseas manufacturing. “We can calculate the inbound cost, the manufacturing cost and the outbound cost and get the total landed cost,” says Dave Cooper, vice president of supply chain solutions for Solectron Corp., of Milpitas, Calif., the world’s second-largest contract manufacturer. “We can model a supply chain complete with tariffs and taxes and see if it makes sense to manufacture this product in Budapest.”
Electronic components supplier Avnet Inc., of Phoenix, also works with customers to identify the hidden costs of manufacturing in cheap labor markets. “A lot of OEMs (original equipment manufacturers) in Western Europe and North America believe they’ll save 20 percent if they move their manufacturing to Eastern Europe or Asia,” says Greg Frazier, executive vice president of Avnet Supply Chain Services. “We’re giving our customers the ability to get quantitative data on what they’ll save if they manufacture elsewhere.”
See the story that goes with this sidebar: Supply Chains Eye the Plant Floor
