Opportunities at home and a closing cost gap with overseas sourcing are making domestic manufacturing an increasingly attractive option
U.S. OEMs that go overseas to reduce production costs often don’t realize they can still save money by using a local contract manufacturer. Consider some of the realities facing OEMs, domestic contract manufacturers, and their overseas competitors.
The Cost Gap is Closing: a 2015 study by the Boston Consulting Group has estimated that the cost gap between U.S. Manufacturing and Offshore
Manufacturing (particularly Chinese manufacturing) will continue to shrink.
In fact, the BCG reports “Within 5 years, the total cost of production for many products will be only about 10 to 15 percent less in Chinese coastal cities than in some parts of the U.S.1”
Once OEMs factor in critical aspects like shipping, inventory, and other incidentals – it becomes quickly apparent that the cost gap between U.S. manufacturing VS. sourcing in China is growing ever-smaller.
This closing cost gap is due to a number of factors ranging from rapidly rising wages in China, lower energy costs, better quality control in the U.S., and lower transportation costs.
Overseas Travel is Expensive: The hidden costs associated with overseas travel can quickly eat up much of the savings OEMS might otherwise realize. By relying on overseas manufacturers, OEMS must also contend with the big bill of overseas travel. Plane tickets, hotel rooms, meals, and a wide variety of incidentals that can add up fast. It’s far more affordable to compensate employees who drive to a nearby contract manufacturer or even fly domestically.
Domestic Delivery Can Offer Major Cost Savings: When completed components and finished products are shipped to OEMs – and if needed, their customers – domestic shipping can be a boon to your bottom line. Additionally, materials that aren’t shipped across international borders don’t require extensive packaging. A local contract manufacturer can protect materials with reusable packaging and plastic totes, eliminating the need to use new cardboard and bubble wrap and cutting the cost of disposal for the customer. Money is saved and the carbon footprint of delivery is greatly reduced.