The Hard Dollar Costs of the Re-Shoring Procurement and Manufacturing Debate (Part 3)

Please click here for Part 1 and Part 2 of this series.

As companies that have recently re-shored spend from China or other regions have discovered, there are several factors that go into cost equations and models weighing local versus global options. Here are just a few inputs we've considered in our own global sourcing initiatives to weigh whether low-cost versus local (or near-shore) options make the most sense: volume, level of technological sophistication required, infrequent design and tool changes, regular repetitive production, just in time (JIT) delivery requirements, products with a high unskilled or semi skilled labor input, labor costs, products without highly sensitive IP issues attached, raw material content, and quality requirements.

The issues are numerous. As Michael suggests in his article, "you should never outsource on a wage analysis alone, but it doesn't necessarily mean you should pull back to the U.S. ...sometimes near-sourcing, to Mexico for instance, is the right solution." Mexico of course brings a whole host of issues aside from labor costs and other inputs. My wife has a nice bulletproof leather jacket she wears for trips to visit plants in Juarez. But I won't go there in this analysis (we'd rather shoot straighter than typical cartel members).

Ultimately, I mostly agree with Michael that "you shouldn't play the wage game unless you are planning two moves ahead." But even then, unless you're developing local suppliers for local markets, the wage game is always risky. And I also concer that "bulky items, items that can experience unpredictable demand spikes, and items that require a lot of quality control are typically not good options for outsourcing." Our rule of thumb at Spend Matters and MetalMiner is that if it fits in a shoebox, it might be a candidate for global sourcing. But if not, don't even consider it.

- Jason Busch

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