American manufacturing is certainly underappreciated. Even today, with U.S. energy costs falling and foreign wages rising, there are those who say onshoring and reshoring are efforts in futility.
In reality, American manufacturing is making a comeback. Huge corporations such as GE, Whirlpool, Google, and Walmart are moving their manufacturing back home. Why?
- First, because studies show consumers are willing to pay more for American-made goods.
- Second, it's a great PR move for winning favor with the public.
- Third, manufacturing in the U.S. has a lower total cost of ownership than outsourced manufacturing.
That's right, American manufacturing is more cost-effective than offshore manufacturing for any company that sells its product to American consumers. Labor and production costs are only a small part of your total cost of ownership, though that's what most companies use to make their shoring decisions.
What is your total cost of ownership (TCO)?
Total cost of ownership refers to both the direct and indirect costs of your part, from design to distribution. Depending on your project plans, your product may spend most of its time in the manufacturing phase (production, fabrication, assembly, packaging).
You may think of "manufacturing" as one large financial consideration. In reality, there are multiple stages and factors of manufacturing that greatly affect how much you spend in this phase. Some of these considerations include:
-Shipping & transportation
-Local & global economies
Manufacturing is more than just labor and production. All of these things and more need to be factored into cost analyses before making a shoring decision.
To get an estimate of your company's TCO, check out this Total Cost of Ownership Estimator.
Why does American manufacturing have a lower TCO?
Do we even need to mention the exorbitant costs of shipping and transportation from foreign countries? As a rule, it's much cheaper to source your manufacturing close to your consumer market. So, if your target market is in or close to your foreign manufacturing country, your TCO will be much lower.
However, American manufacturing offers a few other advantages.
- Highly trained and skilled workforce
- Innovative supply chain
- Quality control - high quality materials, machinery, labor, testing, & inspection
- Local partnerships, community support
- Legal protection for IP and other risk management safety nets
- Quick reaction to market trends and consumer demand
- Stable economy, currency, and government
- Ease of communication between all links in the supply chain
- Low energy & real estate costs
- Government incentives for companies who onshore & reshore manufacturing
- Automated processes produce higher quality parts and lower the cost of labor
- Much shorter lead times
- JIT inventory & other inventory management programs
In the short term, it's easy to say "low labor and production costs mean a more affordable product," but that's simply not true. In the long term, the money you save by keeping your manufacturing in America will completely overshadow the initial savings from offshoring.
It only takes one instance of IP theft or disadvantageous currency fluctuation to cripple your supply chain. It only takes one miscommunication between you and your foreign manufacturer to cause a breakdown in production.
These things simply can't happen if offshoring hopes to compete with local sourcing - after all, with a lead time of multiple months, everything needs to go smoothly. A bad quality product or missed shipment can easily put you months behind schedule.
American Manufacturing & Your Total Cost of Ownership
Sometimes our customers have tried outsourced manufacturing and realized they weren't saving as much money as they'd hoped. Sometimes our customers see the dangers inherent in keeping your product (your revenue source) on the other side of the world. In both cases, they're pleasantly surprised by the results when they choose an American manufacturer.
Try onshoring, or reshoring, and watch what happens to your total cost of ownership. We bet you'll be pleasantly surprised as well.
(Editor’s note: This blog was originally posted in July 2016 and was recently updated.)