Research suggests overemphasis on comparative labor rates distorts outsourcing decisions
Wakefield, RI — September 8, 2004 — Redesign, not offshoring production to countries such as China, holds the greatest promise of cost advantage for U.S. manufacturers, according to a new study that attacks longstanding assumptions about product costs that have troubled manufacturers for decades, both in the United States and worldwide.
The study, "Improved Product Design Practices Would Make U.S. Manufacturing More Cost Effective: A Case to Consider Before Outsourcing to China," suggests that U.S. companies should do a much better job of integrating cost analysis into product design. If rigorous cost analysis were to be instituted as a foundation for product design, U.S. manufacturers would be able to develop innovative products that are more economical to produce in the United States, assert the report's coauthors, Nicholas P. Dewhurst and David G. Meeker.
Dewhurst is executive vice president of Boothroyd Dewhurst, a solution provider specializing in software for design for manufacture and assembly (DFMA). Meeker is a DFMA consultant.
One of the more provocative conclusions of the study is that it can be more advantageous for U.S. manufacturers to lower costs by redesigning products than by outsourcing production to other countries such as China. In many instances, the study shows, redesigning a product and manufacturing it in the United States is a better option for saving money.
To support this idea, the authors identify two principles of design best practices that, they said, many U.S. manufacturing companies overlook when making outsourcing decisions:
"We know, from years of consulting with design engineers, that U.S. manufacturers have very little visibility into what their products should cost to make," said Dewhurst. "Companies historically do a poor job of integrating cost analysis into early product design. Many companies now rushing to outsource manufacturing still do not understand that the design of the product determines the final cost.
Dewhurst warned that outsourcing should not be the first step in lowering product costs. "Considering the competitive nature of the global economy and the many hidden risks associated with outsourcing ventures, U.S. companies should scour product designs for efficiency before resorting to offshore production," he said. "We hope this study encourages the U.S. manufacturing industry to take another look at design cost analysis."
The complete text of the study is available at www.dfma.com/truecost.
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:
Wakefield, RI — September 8, 2004 — Redesign, not offshoring production to countries such as China, holds the greatest promise of cost advantage for U.S. manufacturers, according to a new study that attacks longstanding assumptions about product costs that have troubled manufacturers for decades, both in the United States and worldwide.
The study, "Improved Product Design Practices Would Make U.S. Manufacturing More Cost Effective: A Case to Consider Before Outsourcing to China," suggests that U.S. companies should do a much better job of integrating cost analysis into product design. If rigorous cost analysis were to be instituted as a foundation for product design, U.S. manufacturers would be able to develop innovative products that are more economical to produce in the United States, assert the report's coauthors, Nicholas P. Dewhurst and David G. Meeker.
Dewhurst is executive vice president of Boothroyd Dewhurst, a solution provider specializing in software for design for manufacture and assembly (DFMA). Meeker is a DFMA consultant.
One of the more provocative conclusions of the study is that it can be more advantageous for U.S. manufacturers to lower costs by redesigning products than by outsourcing production to other countries such as China. In many instances, the study shows, redesigning a product and manufacturing it in the United States is a better option for saving money.
To support this idea, the authors identify two principles of design best practices that, they said, many U.S. manufacturing companies overlook when making 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.
"We know, from years of consulting with design engineers, that U.S. manufacturers have very little visibility into what their products should cost to make," said Dewhurst. "Companies historically do a poor job of integrating cost analysis into early product design. Many companies now rushing to outsource manufacturing still do not understand that the design of the product determines the final cost.
Dewhurst warned that outsourcing should not be the first step in lowering product costs. "Considering the competitive nature of the global economy and the many hidden risks associated with outsourcing ventures, U.S. companies should scour product designs for efficiency before resorting to offshore production," he said. "We hope this study encourages the U.S. manufacturing industry to take another look at design cost analysis."
The complete text of the study is available at www.dfma.com/truecost.
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.
