Over the years many parts, customers, and jobs were taken out of North America and moved overseas. This has been a trend for quite a while but there are some signs that many companies are taking a second look at existing overseas efforts. New figures indicate that companies are investigating opportunities in North America for production.
North America is a top competitor in manufacturing. Extensive R&D efforts ensure quality assurance, while trained and educated professionals promise quality control in post production.
With such a secure network already in place, many of the extra costs that would otherwise be incurred abroad are eliminated. These added costs are explained in the following checklist “The Added Costs of Offshore Sourcing of Die Castings”:
1. Overseas Travel & Lodging. Several extended trips may be required before a qualified offshore die casting supplier is even located; continuing return visits should be scheduled to monitor performance on-site. Management must be aware that a buyer’s desire to see the world may be hiding a bad business decision.
2. The Third Party Factor. Use of manufacturer or trading representatives with offshore suppliers involves costs in excess of the normal commissions. In case of die tooling and production, the expense of non-site presence and control cannot be sidestepped through use of such representatives.
3. Miscommunication. Communicating important die design changes and assuring their proper implementation over barriers of language, distance and culture carries built-in extra costs, regardless of trading partner arrangements
4. Frozen Monies. Common methods of financing international trade involve long-term bank deposits that are removed from company cash flow for many months.
5. Payment Sight Unseen. With customary advance payment requirements – no ifs, ands or buts the purchaser has no right to review shipment quality or quantity before cash changes hands.
6. Added Handling Costs. Shipment damage is more likely with offshore purchases. Additional costs for packing, handling and insurance should be allocated.
7. The paperwork Snake. Manufactures understand that offshore involves substantial paperwork with added procedures, shipments and customs forms.
8. Excessive Inventory Requirements. Production and transoceanic requirements may demand that the total amount of the casting order, compromising and company’s long-term needs, be shipped all at once. Inventory storage costs should be factored into the piece-part price. Just-In-Time strategies ruled out.
9. Long Lead Times. Long offshore production lead times and common delays necessitate accurate forecasting. If a company’s crystal ball is cloudy the product demand soars or drops, commitments to overseas suppliers cannot be easily altered. Short-term cancellations are virtually impossible.
10. Wait-and-Switch. The experience of offshore purchasers indicates that an initially low die casting piece-part price may go up dramatically once tooling is in place.
11. The Price of Die Failure. Low die costs may be based on uncertified, unrated die steel, with no guarantees of tooling life-foreshadowing the heavy costs of premature die failure.
12. Legal Liabilities. The use of uncertified, off-spec alloy often contributes to the low pricing offered by offshore die casters. Even when initial on-site inspections are made, this factor can be a time bomb for manufactures who risk disastrous product failures when such components are incorporated in their products.
13. Technology at Risk. There may be danger present when a manufacturer reveals secret technology to an offshore supplier with who cannot develop a close relationship: he can find his technology shared with his competitors-at home or abroad.
14. Market Share at Risk. The potential cost of creating a new competitor for the American’s marketing information, specifications and possibly even tooling
Apart from the above issues, there are a multitude of other costs that are naturally incurred. Unfortunately, many companies do not realize this until after the fact. Some of the hidden costs you should think about before investing overseas include:
- Monetary conversion rates
- Delays in production
- Uncontrollable external environments
- Government regulations
Fortunately today there is a service that can provide costs of such items to make the analysis easier for anyone considering the use of offshore vendors. The name of the company is: Reshoring Initiative and can be found at www.reshorenow.com.
The mission of the Reshoring Initiative is to bring good, well-paying manufacturing jobs back to the United States by assisting companies to more accurately assess their total cost of offshoring, and shift collective thinking from “offshoring is cheaper” to “local reduces the total cost of ownership”.
One of the main items that the Reshoring Intiative provides is an on line calculator that helps put all costs in one place for a valid comparison from the offshore product total cost to the US produced cost. The name of this useful tool is called the “Total Cost of Ownership Estimator”.
Total Cost of Ownership Estimator™
What is the Total Cost of Ownership Estimator?
The Total Cost of Ownership Estimator is a complimentary tool that enables aggregation of all cost and risk factors into one cost for simpler, more objective decision making.
Most companies make sourcing decisions based on price alone, resulting in a 20 to 30 percent miscalculation of actual offshoring costs. With the Total Cost of Ownership Estimator, users account for all relevant factors when determining their total cost of ownership including overhead, balance sheet, corporate strategy and other external and internal business costs.
Once your unique data is input into the calculator, you will receive your total cost of ownership analysis complete with:
- Calculations of each source’s cost
- An accumulation of all costs into cost categories
- A grand total cost
- Line charts showing each source’s current price, total cost of ownership and 5-year forecast
- Line charts showing your cumulative cost by category
If you have any aluminum die cast products you would like a quote on please contact Premier Engineered Products.
By Leonard Cordaro, President of Premier Engineered Products