- 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:
- Making Global Supply Chains Work Supply and demand chain practitioners take on the challenges and opportunities of world marketplace.
- The Hidden Costs of a Global Supply & Demand Chain - Veteran industry observers warn of potential hidden costs of offshoring.
- Mastering the Complexity Challenge in the Global Supply Chain - While many companies are acting globally, they are still thinking locally.
- Ensuring Security of Supply in the Lean Supply Chain - Balancing the demands of security with the requirements of today's lean supply chains
- The World Is Enough - Making the global high-tech supply chain more accessible.