Product Redesign, Not Offshoring, Holds Cost Advantage for U.S. Manufacturers - Study

Research suggests overemphasis on comparative labor rates distorts outsourcing decisions

  • First, it is possible to redesign products to reduce part count and cost. As an illustration, the study features an in-depth, quantitative analysis showing how the redesign of an electric drill would eliminate the cost advantage of offshore manufacturing and justify a decision not to outsource production.

  • And second, it is necessary to account for all the additional costs associated with offshore manufacturing and to apply those additional costs to the product. The study warns that companies may not be accounting for the full costs of outsourcing when they consider sending production overseas to countries with very low labor rates such as China. The authors identify a number of hidden costs, including shipping and logistics, that can add an estimated 24 percent to labor and material costs at the offshore location.

For more information on the challenges and opportunities presented by increasingly global supply chains, see the special in-depth report in the August/September 2004 issue of Supply & Demand Chain Executive, which includes the following articles:

For more information on the global supply chain, with a focus on security issues, see "Building the Secure Supply Chain," the Net Best Thing article in the June/July 2003 issue of iSource Business (now Supply & Demand Chain Executive) magazine.