Many individuals loosely associated with the manufacturing world, have long been under the inaccurate assumption that offshoring always improves a company’s bottom line due to lower wages abroad.
As a result, for too long, companies failed to adequately analyze the full costs involved with offshoring. These costs include not only the financial shipping and tariff costs, but also the less direct costs of removing money from the local and domestic economy.
Over the last two decades, a significant number of manufacturing jobs have left the United States due to offshoring.
This trend has hurt, and in some cases, devastated local economies across the country in which the manufacturing sector was a huge employer. Fortunately, there is a growing trend for companies to bring these jobs back as manufacturers become more familiar with the concept of Total Cost of Ownership (TCO).
Identifying the Total Cost of Ownership involves factoring all relevant expense components into determining whether or not offshoring is indeed profitable for a given manufacturer.
The Reshoring Trend
The Reshoring Initiative is a non-profit group that analyzes offshoring costs and tracks statistics that detail trends in offshoring. According to the Reshoring Initiative, around 500,000 manufacturing jobs have returned to the United States over the last few years.
A variety of factors have contributed to this trend. The Reshoring Initiatives cites rising wages in China and domestic developments of advanced manufacturing technologies as the primary causes of this trend.
Companies who have shifted the offshoring trend have done so to take advantage of the following three advantages of producing manufactured products locally or domestically:
- Lower shipping costs or no shipping costs – Offshoring presents many logistical challenges. A product produced overseas often must be shipped back to the United States. This shipping can only be done either by air or by sea. These methods of shipping are typically more expensive than shipping over land. By reshoring, companies save material amounts of money (and time) on shipping.
- Closer location of production facility to the end purchaser of the manufactured product – The ability to say that a product was produced entirely in the United States, is having increasingly significant market value among Americans. Many consumers are more inclined to purchase a product if they see that the company that produced it is making concerted effort to contribute to the American economy and the product is available without delays.
- Government encouragement – The United States government has invested an increasing amount of effort into getting companies to relocate their production facilities back in the country. Companies can often enjoy tax breaks and other financial benefits if they reshore. These government incentives are offered on the federal, state, and local levels.
How Do Total Cost Of Ownership Calculations Work?
Companies that neglect TCO calculations when deciding if offshoring is worthwhile, can often be making a huge mistake. The decision and process of offshoring production is a time consuming and meaningful exercise that should not be taken lightly. Careful and comprehensive cost calculations can reveal if a manufacturer is about to enter into a time wasting offshoring initiative that might actually HURT their bottom line.
With TCO, companies don’t just enjoy a simple and comprehensive means of examining the costs associated with offshoring. They all take advantage of tools that also factor in the future costs of offshoring and the costs of potential risks of offshoring.
The expenses analyzed include, but are not limited to, travel expense, travel time, costs of shipping, warranty costs, IP losses, and effects offshoring has on innovation potentials related to product development. TCO calculations should also take into account any potential instability in politics, natural environment, or society of the country to which the company is considering offshoring.
According to research conducted by organizations like the Reshoring Initiative, some companies will improve their bottom line by reshoring up to a quarter of what they currently have off shored. GreenLeaf Industries has helped multiple companies reduce TCO and cycle times by reshoring their plastic injection molding projects.
How Can Companies Use The TCO Estimator Offered By The Reshoring Initiative?
Perhaps the easiest way out there to make accurate and dependable TCO calculations is to use the Estimator tool offered by the Reshoring Initiative.
The result of running the estimator is a collection of line charts that show both the current TCO calculation and a 5-year TCO forecast that predicts offshoring results out in to the future. The TCO calculator will break costs down by category so that companies can see what specifically is making offshoring the most costly.
One of the best things about the TCO Estimator is that it is free to use and can be easily accessed online.
The Estimator is promoted by recognition from the United States Commerce Department. It offers 17 different country specific analyses so that companies can curtail their results depending on which country they are interested in offshoring to.
The Reshoring Initiative’s Estimator tool is an invaluable tool to any manufacturing company that needs some insights on the potential benefits and drawbacks of offshoring. If you would like to discuss one of your plastic injection molding projects, contact us for a free consult.
About GreenLeaf: GreenLeaf Industries is an ISO 9001 registered manufacturer that consistently adheres to all its standards to provide our clients with consistent, reliable, quality automotive and industrial plastic parts.
We are an American injection molding company, unafraid to compete in the world market and determined to succeed. Established in 1999, we take pride in our high-quality craftsmanship and superior customer service. Contact us to discuss whether your injection molding project may be a candidate for reshoring.
310 Bussell Ferry Road
Lenoir City, TN 37771