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What are some advantages vs. disadvantages of overseas manufacturing?
I read that the overseas manufacturing market is growing at approximately 27% a year. I did some research and noticed a lot of businesses responded positively to the cost and quality that overseas vendors are offering. I've never done any outsourcing, so I'm a little hesitant. I'm in the electronics industry and our company is located in California, so cost might be cheaper if we choose Asia. I was hoping to get some firsthand feedback from the community. Does anyone want to weigh in on their experience or opinion? Any advice would be greatly appreciated.
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6 Answers
In my opinion, It will depend on your business unit needs and where are the suppliers locate. In general, I am assuming most suppliers in Asia. Thus, the advantage will be:
1. Cost
- Shorten Logistics cycle time.
- Manpower is cheaper in Asia, esp. china for non unique production/mfg parts to be outsource.
- Leverage experience contract manufacturing suppliers. They will help you save time and Overhead rental building cost. You can get cost per unit direct to do your business. They may have different MFG site too.
- One piece flow efficiency. To improve productivity, you may need JIT materials to build, reduce holding inventory.
- Market Trend. You may get cheaper material cost, resource and business adv.
- China and other Asia market not in recession. You may get huge advantage in business market.
Disadvantage:
1. Inexperience suppliers/new technology will need a lot of time and coordination and may provide Inaccurate projection cost, it could end up cost more than original quote if you do not understand clearly your statement of work.
2. Language barrier
3. Culture barrier
4. Time different, long working hours.
5. Continous improvement in quality issues.
and etc.
Hello Benjamin,
I can give you several examples of outsourcing and not one of them progressed as expected. In every case, except one, they had serious quality and delivery problems; and not totally the fault of the supplier. The only experience I have is people going overseas to get price breaks and they suffer thorugh the quality, delivery and inventory issues as best they can. Some of the economic arguments for outsourcing are hard to argue with yet I continually find companies making poor assesments of the potential problems and getting huge surprises.
My advise. Be thorough, be skeptical and be careful.
Lonnie Wilson
law@qc-ep.com
Benjamin,
I agree with Lonnie's perspective. There is an administrative burden incurred in managing the supplier thousands of miles away. The disconnect between the two companies is exacerbated by their two different systems and cultures. It is not practical to extend your ERP to their operation for obvious security reasons nor is it feasible to integrate their business system into yours because the cost and duration of your relationship needs to be more dynamic. One approach to mitigate the administrative burden Lonnie referred to is to use an Enterprise Add-On to make the two business systems act like one without any costly integration, disruption of either ERP or business. As the manufacturer, you can move the EAO solution to the facilites/subcontractors doing the work and gain real time insight into inventory, order status, shipments, etc. By closing the gap and getting their operation to look/act/report like your current systems you can mitigate much of the risk and cost to your company.
Steve
Let me start by asking some basic questions
Is it possible to know the success or failure, pros and cons of outsourcing without identifying to which vendor, what, where, when, why was outsourced?
What I am trying to suggest here is, one has to identify the critical factors that affect outsourcing decision. Companies outsource for different reasons to different places to different vendors. Since one size doesn’t fit all, you need to go through all steps that determine your failure and success
how about you keep the jobs back at home, we wouldnt have such an effect on our economy if the jobs were here and not sent to china etc.
create more jobs in your own country. sure cheap labor is great for the company but like they say above, the quality and just the 'knowing' that its done in your own country is something to look at.
theres nothing like looking at a label on clothing for instance and seeing 'made in usa' compared to 'made in china', it goes without saying..and also other products, as a customer don't you prefer to see 'made in usa' over 'made in china'.
I agree with the above. Let me also add a more emotional - less economic reason. When you move your manufacturing oversees you potentially send US jobs with them. While optimizing profit is one part of the equation it must also be balanced with what we are doing to our own work force.
I have had a number of clients ask me this question and I cite all the items listed above. But at the end of the day none of them hope their customers outsource the supply of their product that our client are selling.
So in the end a long hard look should be given AND don't discount the impact on the local economy and workforce. I don't care what they say about a global economy. We must continue to make things for the US to continue to be a leader in the industrialized society.
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