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Is China really cheaper than US Manufacturing?

American manufacturing

Image courtesy of Gualberto107 / FreeDigitalPhotos.net

Bringing production back to the US is a major topic of conversation for many different processes across the nation. Within in the plastics industry the conversation for years was “why” when watching job after job move off shore. While no two programs are the same, I will provide some insight into both why it left the US and whether it should be a top priority to bring it back. First, let’s look at why it left to begin with.

Human Labor

Human labor is often the largest driving factor in off shoring production. In most cases the more human hands come into play, the more cost savings a customer will see overseas. In the injection molding industry much of the work that went offshore was based on an assumption that because one project saw a cost savings, another program would as well that perhaps does not have needs for human labor.  It is important to understand the moving factors that go into a program and also utilize your state side supply chain to present cost saving options.

A willingness to say it can be done with little push back

The next factor was not immediately apparent to me, and I often downplayed it as others would share it with me. That changed when I experienced it first hand in managing off shore production. When you are managing many programs at once it can be seen as a benefit to get a nod or yes.  More than anything else human nature comes into play.  It is the easy way out, one supplier shows you a list of concerns, and another says “Ya, we can do it, no problem”.  The latter is more appealing to someone that is already overloaded with programs.  I soon learned the danger in this philosophy.  I soon discovered the yes was I receiving was nothing more than an acknowledgment that there was an attempt to listen to what was being shared.  Those of you with experienced in sourcing internationally have often developed a series of safeguards against this practice because we learned the hard way that expectations we believed were understood through emails, phone calls, and visits were not.  Now, the other side of the coin here is many US Manufacturers are risk adverse due to the competitive marketplace.  It is important that we stand up with a “can do attitude” and do our part to address potential problems with potential solutions.

Ideal Terms

Payment terms have played a major part in much continued off shoring. Cash flow is crucial to any business and the thought process is certainly justifiable at first glance.  The is major flaw that we are all too happy to point out is logistics/shipping and return policies leading to a requirement for the customer to inventory more parts in house, therefore, having an adverse effect on their cash flow. Many US manufacturers are beginning to understand the real issue and are willing to negotiate a mutually beneficial credit relationship that improves their customer’s cash flow, while limiting their exposure.  In many cases we find that forming mutually beneficial contracts to reduce on hand inventory for your customers is far more beneficial for our customers that an extra 30 days to pay an invoice.

Success metrics for sourcing decision makers

Over the past decade sourcing departments have shifted more and more to itemizing high dollar spend into one specific manufacturing process, versus complete programs. A large result of this shift has become the metric for success in total spend for components alone, not total program costs. The outcome leads to auction style sourcing and the lowest qualified bidder takes the cake. The major flaw here and lesson learned by many is success in all aspects of sourcing and supplying within the manufacturing world are mutually dependent. This means that wigit A costing $.10 in China and $1.00 in the US or vise versa does not begin to provide enough information to make a sourcing decision. Going back to human labor the other major factor that increases cost when offshoring is TIME.

Now let’s take a look to see if your project is ready to come home

  1. Automation is available to lessen or eliminate the needs for human labor. If yes, and capital costs fit your required ROI, then bring her back!
  2. Proprietary technology- Many large companies that manufacture in house and source outside suppliers have shifted priority number 1 for in house work to components or processes involving valuable technology. If your business is dependent on your I.P., then keep it close.
  3. Trust- I have worked my entire career based on building strong relationships. Where did this get lost in the mix? I have seen all sides and stances on this, but in the end a mutually dependent relationship requires trust. When trust may be damaged the easier it is to get to your source, the sooner it can be repaired and sleepless nights can end!
  4. Traceability- Accessing your supplier and knowing you can get answers swiftly and accurately is huge cost savings.

 

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