Here, there and everywhere | The economist
Reason #1: Offshoring without getting the full picture
Over the years, working for and with numerous manufacturing companies, I’ve seen many supply chain practices that cost companies money. In a series of blog posts, I’ll outline these issues and discuss some ideas around how to avoid these practices.
We all understand the appeal of moving manufacturing offshore; In many cases, offshore manufacturing is considerably cheaper, is apparently easier (just send the requirements and they build it!) But before you pull the trigger, make sure you understand these cost factors that don’t often get considered;
Longer lead time – The product that at one time was manufactured in your plant and then shipped to your customer (often in the same country) is now being shipped by boat. Instead of a 1 week lead-time, you are looking at a month or more. This significantly changes the supply chain picture and must be considered in terms of additional safety stock requirements (which will drive up inventories) and your order promise policies.
Communication issues – Dealing with people in other countries has its challenges; language barriers can make communicating detailed technical issues a challenge. Meetings are difficult to set up because one side or the other will need to take the call outside of normal business hours. And if you decide to meet face to face, you are looking at long travel times.
Increased transportation costs – Has anyone noticed that the price of fuel is going up? Kind of hard not to notice actually. And I don’t think we are going to see fuel prices declining any time soon. These high fuel costs impact the shipping lines too and those costs will get passed on to you.
Loss of control and oversight – Supply chain is complex. Anyone remember the complexity of managing a multi-part engineering change? Expediting multiple lines on a customer order? Implementing a manufacturing process change, Resolving a significant quality issue? Tough to get everything working together, right? Now imagine trying to do these things when you have no control over the manufacturing process. The bigger issue is that in the public’s eye, there is no difference between the company manufacturing the product and the brand that owns it. So, if the company manufacturing your goods has an accident or mistreats their employees, your brand is going to get dragged through the dirt.
Intellectual Property loss – Very often, your design, your manufacturing processes are a closely guarded secret, and rightfully so. This knowledge is what sets you apart from the competition. When you offshore your manufacturing you are, by necessity, letting your secrets out to the world. And because you are dealing with a foreign country you may not have recourse if the company you contracted to make your product goes ahead and copies your product.
So, as I mentioned earlier, moving your manufacturing offshore could well improve your financial position. That being said, before you make the move make sure you investigate and consider these additional cost factors.
Do you have other costs associated with offshoring? Have any interesting stories? Comment back and let us know.