Would your business benefit from global contract manufacturing?  Outsourcing production to low labor cost countries such as China, India, or Taiwan could save your business plenty of money, but it can also pose many, many challenges.  We've outlined below the pros and cons of outsourcing so you can decide if it makes sense for your business.

Pros:

Cheaper Cost:

It's no secret that labor costs in countries like China, Taiwan, and India are significantly cheaper than labor costs in the U.S.  Utilizing manufacturing labor in these countries allows for the gross cost of the product(s) you need to be made less expensively and with the same level of quality you would expect from world class manufacturing.  Being able to properly utilize overseas manufacturing plants can greatly cut down your production and labor costs allowing your business to allocate that money elsewhere, including your bottom line.

Increased Capacity:

Because of the major investments in the manufacturing sectors in countries like China, there is much more manufacturing capacity when compared to the U.S.  Most of these countries have dedicated huge portions of their economy and investments towards manufacturing and they have the technical labor force necessary to run their plants as good, or better, than U.S. manufacturers.  The capabilities of factories in these countries are much bigger than what many of the factories in the U.S can handle which gives them a clear competitive advantage in quality of components and the rate at which they can produce the components.

Technology:

As noted in capacity, huge investments are being made ensuring manufacturing plants are equipped with the most up-to-date technology in the world.  We’ve all heard stories of dirt floors and leaking roofs scattered throughout China, Taiwan and India.  While you can certainly still find them if you look hard enough, some of the most state-of-the-art manufacturing happens in these countries. Because of this trend on staying at or ahead of the technology curve, great efficiency is gained in producing components, assemblies or finished goods.

Cons:

Language barrier:

Countries like India and China have been hot spot sourcing locations for businesses in and out of the U.S for years now.  It is noted that English is still the driving economic language.  However, getting outside of these countries and effective communication (language) can be challenging.  Having quality customer support as well as an effective channel for communications is crucial to maintaining relationships with business partners.  If there is a language barrier between your business and your supplier, there are many issues that can arise.  Even aspects like differences in conversion from standard to metric or “equivalent” raw materials can add stress to an already challenging environment.  It's important to make sure there are contacts in your company and with your supplier that are well-versed in both native languages and have an established relationship with the supplier's point of contact.

Infrastructure:

In certain developing countries, infrastructure can be challenging.  India is a prime example of this.  Due to heavy traffic going through roadways/interstates that are in desperate need of repair and maintenance, logistics in country is difficult.  In addition, port delays and a lack of a sense of urgency compound the infrastructure problems.  Countries like China and Taiwan have solved this problem years ago, and you simply don’t see the same infrastructure challenges as you do in India and other developing countries. 

Long Lead Times:

Extended lead-times for components/production is something that must be accounted for and planned for when developing a global sourcing strategy.  Being able to fully understand production lead-time and adding additional time factors is critical:

• Ocean transit time
• Port loading and unloading
• Customs hold times if a shipment has go to through an exam
• Trucking time from port to facility or bonded warehouse
• Local transit to your facility

After you add all of these up, you can find yourself staring at a big number.  With forecasts and demand fluctuations being challenging to predict, the necessity of holding safety stock is pretty important.  A secondary domestic supplier can help with this in urgent times, and should always be looked at from a safety standpoint.

High Minimum Order Quantities:

What is a minimum order quantity (MOQ)? A minimum order quantity is the lowest number of units of an item that a supplier or factory is willing to produce in an order.  Many factories will require a high MOQ, especially as it relates to cast, forged or stamped parts.  In order to effectively absorb the setup times, and to be profitable, MOQ’s are usually established.  If you have a low volume casting that you have some demand for, it may make more sense to source domestically.  Higher volume components usually have no issues meeting minimum order quantity requirements.

Component Sourcing International provides supply chain solutions for unique manufacturing challenges by lowering your costs and improving your productivity.  We give you both the peace of mind and confidence to know that your finished products will be of the utmost quality and at the best pricing the world has to offer.  To learn more about how CSI can act as your Global Sourcing Integrator, contact us today.

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