@prasadb1: I think you hit the nail on the head in terms of why companies don't do a thorough TCO analysis on expenditures. I think the lesson here is that even a less formal TCO with not as much rigor can really deliver savings in the long run.
Total Cost of Ownership (TCO), whether it's used to evaluate outsourcing decisions or technology expenditures, is usually a slippery slope. It also seems that companies have a hard time figuring out the right methodology and then an even tougher time putting them to work and employing TCO on an on-going basis. I'm sure that's why we don't see more rigor in adhering to TCO evaluations of strategic decisions, for outsourcing partnerships or anything else, for that matter.
I agree when companies consider the total life-cycle cost from inception-to-support, then they realize that they would not be able to realize the benefits as expected.
Most of the initial cost justification looks good on the paper, because they are often based on tooling costs (labor-intensive), which is only a part of the cost story. Often such justifications failed to consider cost of delay, cost to poor quality, cost of defective material or travel and delivery, transportations, etc. I agree there's no doubt that political pressures (to cut rising costs of production) play some role in maintaining outsourcing relationships and developing strategies.
Thanks for sharing that great real-world example, Dave. I'm sure there are countless other companies that have had similar experiences. Along with initial cost justifications, there's no doubt that politics plays in on-going role in maintaining outsourcing relationships and strategies when there may be evidence that they're not delivering benefits as expected. Perhaps with the TCO approach Harry Moser's Reshoring group is advocating, companies can be convinced to take a more wholesale look at their strategies, which will promote better decision-making in the long term.
At a previous employer, there was an aluminum casting which was purchased in Taiwan and machined in the U.S. About 30% of the castings had to be scrapped for porosity after machining. (Despite being labeled 100% x-ray inspected" by the supplier - we joked that maybe they were x-raying the castings, they just weren't looking at the x-rays). This meant that an entire shift of labor was being wasted, not to mention an entire shift of machine time. I found out that the piece price from a U.S. foundry was actually cheaper than Taiwan. The only reason we went with Taiwan was the tooling cost. Of course, the difference in tooling cost was more than offset by the scrap cost, wasted labor cost, wasted capacity cost, etc.! I tried to explain this to my boss, but to no avail. Of course, he was the person who had introduced Asian sourcing to the company, so maybe he didn't want to understand. I spent over a year trying to get the Taiwan foundry to improve their process, but they were uncooperative, and when I left, the castings weren't much better than when I started. Maybe reshoring is starting to gain momentum because companies are starting to realize that they can't engage in this foolishness if they want to survive.
Another cost of off shoring manufacturing is the security risk involved. A few years ago a couple of hard drive manufacturers found viruses had been added to the manufacturing process. Many products have some computer component as part of the system, if a virus is added what is the cost to the consumer - more compromised data, hackers that can gain access to your system. What if its your car? Your computer? Smart Phone, printer... It may be time for the consumer to demand trusted manufacturing sources as part of the packaging of the products.
Beth, thanks for the great information on this. I had not heard of about ReshoreNow.org before now. I've seen firsthand what the race to the Asian labor market can do to an American company culture and morale. As a mechanical engineer in the Pro and Consumer Audio Products industry, the benefits that were sought by off-shoring were only fractionally achieved and, in my opinion, falsely heralded as a win for company profits since the time and energy required for engineering and manufacturing oversight is rarely accounted for when the books are closed on a project. I know that reshoring has been getting a lot of media attention lately and it is great to know that the initiatives are gaining momentum!
DFMA is not just about design with plastics or reducing fasteners; it's about how to design with the right mindset that focus on achieving the design intent with minimum number of parts. I call it Smart Design.
Reducing the number of fasteners is proportional to the number of parts you are developing. Fewer fasteners means fewer parts you will need to design, which will impact on cost to manufacture, assemble and stock. This will bring manufacturing to the US
As for plastics, don't blame poor results on plastics; blame it on poor design. New technologies in plastics are now so advanced that you can use them in many applications reliably. I can provide you with a large number of examples were plastics have performed in both aesthetics and structural applications satisfactory. The plastic shopping cart is a good example for structural application.
Sam Mikhail- speaker at 2011 international Forum on DFMA
Those are exactly the points reshoring proponents make when suggesting the real possibility of a US manufacturing renaissance. Toss in the high-cost of transportation and escalating fuel costs and it builds a nice story for keeping production close to home, as Rob points out.
Fifty-six-year-old Pasquale Russo has been doing metalwork for more than 30 years in a tiny southern Italy village. Many craftsmen like him brought with them fabrication skills when they came from the Old World to America.
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