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The Cost of Offshoring

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6. September 2011

Have you lost some business here and there over the years to overseas competitors because of price? Maybe your customers don't understand the difference between price and cost; that the true cost of offshoring can more than mitigate any perceived advantage they might gain by getting a price concession. If that is the case it might be a good idea to try to educate them on this matter.

Phil Cullen of the Corporation for Manufacturing Excellence (Manex) recently sent me an interesting paper on the subject. Shoot me an email and I will send you a copy.

Among the cost of offshoring that Cullen indentified:

  • Supplier selection: Because of increased complexities, the vendor selection process could account for 2-10% of the OEMs budget for the project. The OEM will have to visit suppliers to personally perform due diligence on the supplier, among many other things.
  • Transition: This process can take anywhere from three months to a year, during which time the OEMs costs will increase. People will need to be trained, travel expenses will increase, and most likely something will go wrong during the transition process that will cost the OEM a customer.
  • Global Supply Chain Risks:  Natural disasters can strike anytime, anyplace, but there are political and currency risks associated with doing business overseas that are not the case domestically.

 

Check out the case studies link on the Manex website to view some of their success stories.

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