McHone Industries Blog

Shoring & Reshoring: American Manufacturing & Total Cost of Ownership

american manufacturing shoring and reshoring total cost of ownership

It may have been tough to believe American manufacturing would make a comeback 20 years ago. 

But as we’re now seeing, it is. 

There’s a renewed interest in bringing manufacturing back stateside. Huge corporations such as GE, Apple, Google, and Walmart are moving large components of their manufacturing back home. 

Why?

The lower total cost of ownership in American manufacturing has become very attractive to companies with overseas operations. 

 

What is your total cost of ownership (TCO)?

Total cost of ownership refers to both the direct and indirect costs of your product, from design to distribution. Depending on your project’s 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 when calculating its TCO. Manufacturing is more than just labor and production expenditures. Other costs include:

 

  • Location
  • Real estate
  • Energy costs
  • Quality control
  • Logistics
  • Inventory costs
  • Labor
  • Production
  • Intellectual property
  • Local & global economies
  • Design
  • Innovation
  • Automation
  • Market responsiveness

 

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?

As a rule, it's much cheaper to source your manufacturing close to your consumer market. Importing products has exorbitant shipping and transportation costs. And let’s not forget the recent tariffs placed on China, where many foreign-assembled goods come from. 

However, manufacturing in the United States has many other advantages that factor into its lower TCO:

  1. A highly trained and skilled workforce
  2. Innovative supply chain
  3. Quality control - high quality materials, machinery, labor, testing, & inspection
  4. Local partnerships, community support
  5. Legal protection for IP and other risk management safety nets
  6. Quick reaction to market trends and consumer demand
  7. Stable economy, currency, and government
  8. Ease of communication between all links in the supply chain
  9. Low energy & real estate costs
  10.  Government incentives for companies who onshore & reshore manufacturing
  11.  Automated processes produce higher quality parts and lower the cost of labor
  12.  Much shorter lead times
  13.  JIT inventory & other inventory management programs

 

In the short term, it's easy to believe low labor and production costs overseas means a more affordable product. 

That's simply not true. 

The money ultimately saved by keeping your manufacturing in America will completely overshadow the initial savings from offshoring.

It only takes one instance of IP theft, a disadvantageous currency fluctuation, or even a worldwide pandemic to cripple your supply chain. It only takes one miscommunication between you and your foreign manufacturer to cause a breakdown in production.

These scenarios 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 their product (i.e. revenue source) on the other side of the world. 

In both cases, they're pleasantly surprised by the results when they choose a manufacturer in the United States. Try onshoring, or reshoring, and watch what happens to your total cost of ownership. We bet you'll be pleasantly surprised as well.

12 Major Cons of Offshoring

 (Editor’s note: This blog was originally posted in July 2016 and was recently updated.)

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