According to Trade and Industry magazine, more companies are considering TCO to determine where to source their injection molders. A recent survey showed that 60 percent of respondents underestimated approximately 20% of their off-shoring costs. This realization has fueled better analysis of these costs, helping decision makers understand the difference between price and cost.
This trend has led to a steady increase in the re-shoring of manufacturing over recent years.
The truth is that the costs of manufacturing offshore are increasing. Wages in China are increasing approximately 20% per year, and their current monetary policy is causing a rise in inflation. Those factors alone are rapidly narrowing the cost gap between the two countries.
Total Cost of Ownership considers not just price but costs such as duty, freight, carrying cost and travel which adversely affect a company’s bottom line. The list is long and does not stop there. Quality, communication, loss of intellectual property rights, loss of opportunity due to delays and large minimum order quantities are all costs not reflected in the price quoted for a product.
There is a TCO calculator now available at www.reshorenow.org to help analyse these costs. It incorporates 29 cost factors and is free to use. Companies that have recently re-shored manufacturing include Apple, GE, Ford, Little Tikes, and Freeman Schwabe Machinery among many others.
Having moved a lot of their production to China in the 80’s and 90’s, Little Tikes V.P Thomas Richmond says “Now, the wheel is kind of coming full circle.” citing energy, raw materials, and shipping costs as reasons for re-shoring.
So when you’re looking for an injection molder or other subcontractor, it’s vital to look beyond the price quote and consider the not-so-obvious factors that come into play to get finished product in hand and on the shelf.