Domestic vs. Foreign Manufacturing – How To Choose

The big dilemma:  Where should we get this new widget made?  Domestically?  Or in another country?  There are a lot of interrelated and complex aspects to answering this question, so how do you choose?

We will talk about a few pros and cons of Foreign Manufacturing vs. Domestic - from our engineering experience.  We will look at how your product and situation can guide which manufacturing path makes sense.  Then, we will give some true customer examples to think about.

Defining Domestic and Foreign Manufacturing

The term Domestic Manufacturing is one of many we use for making things "in country", like in the country of the company.

Foreign manufacturing – often called offshore or overseas manufacturing – has less to do with oceans as the phrase implies (though it fits in many instances).  It is, perhaps, better termed "Foreign Manufacturing" meaning not produced domestically.  "Offshoring" is another term for moving manufacturing processes out of the country.  Either way, these mean the country of design origin and intended consumption is different than the country where the manufacturing is done.

The trend in the last many years (especially in the USA) is to brag up the domestic portion of manufacturing, while doing more manufacturing in other countries.  In public there is talk of keeping things at home, but reality still sees a lot of manufacturing where regulations are lax or labor is cheap.  And, for some, where they don't have to worry about labor unions disrupting production.  Of course, there are dozens of arguments about whether this is good, but I will leave that for later.

In our experience, manufacturing location depends more on the product and situation than on a universal rule.  Some customers have good success with foreign manufacturing, while others do not.  What is the difference?  Let's look at both with an eye to the goals for the product.

The Manufacturing Decision

As a spoiler, here is a compact comparison of some major decision factors.  Please note, these are not absolute, they are trends our customers have experienced.  The correctness of the decision always depends on the company and product situation.

There are many more factors to consider than these, as well as subfactors under these.  Our purpose is not to dispute or to give a definitive explanation.  We wish to give some perspective based on experience.

Foreign Manufacturing Decision Points

In general, we are spoiled by purchasing goods from all over the globe.  We buy things on the internet that come from far away.  Boxes arrive and we don't think much more about it.  What we don't see is the network behind the scenes to make it happen.  When you start manufacturing offshore, you get to manage that network (or hire someone to do it for you).

In considering the options, here are some things to think about:

• First, foreign manufacturing is never as easy as it appears.
• There are many outside factors in cost - shipping, tariffs, import fees, export fees, government extras, travel, brokers, exchange rates etc…
• Acquiring goods from another country involves help from outside your company - finding reliable partners (for shipping, unraveling government regulations, importing, etc.), timing issues, factory delays, special holidays in other countries, ...
• Then, the practical side:
  • How well do you speak the language?  You must communicate details, and a lot of translators don't do well communicating technical detail.
  • Do you know the trade and business customs?
  • Who do you know to guide you?  How well do you trust them?
  • Can you find a fair, reliable agent to handle things?  If so, what do they charge?
• What can you do to assure quality?  (And, What happens when you get a container load of widgets that are not right?)
• An unscrupulous factory can take shortcuts in production to save a buck.  (Yes, this can happen anywhere, but it happens more with foreign manufacturing because the facility is far away and legal recourse may be limited.)
• How much control do you want over the product?  Over quality?

There is a lot to do when launching production no matter where that occurs.  The above list just adds extras - which are normal and natural in business.  Is this negative?  No.

Foreign manufacturing adds a layer of complexity, for a cost-benefit, which is not just money.  We talk about these and more in the Production Chapter of the article - The Product Development Process.

So, how about some first-hand examples?

4 Lessons From Manufacturing Projects

Now let's get on to the meat of the article, and see how true customer examples support or refute the list in the table above.

1. High Volume Can Make Foreign Manufacturing Work

One of our customers does all of their manufacturing offshore.  They have a few select factories in China and India that produce the bulk of their product - 10's of thousands of pieces in dozens of SKUs.  They have developed good relationships with these factories and they have people in place to manage the effort required to keep things moving smoothly.

This customer has found they can save much more in foreign manufacturing than the cost of the USA-based employees to keep things on track.  On the whole they are quite successful, but it does not come without some hiccups.  Their challenges include:

• Scheduling, timing and planning so product is not late for their distribution customers.
• First batch quality issues.  (Once details work out, things usually go well.)
• Hidden material changes (when the factory can't get the specific material or decides to save money on their end without telling the customer).  Sometimes the fallout of these situations is painful and expensive.
• A host of factors with foreign manufacturing revolving around holidays, shipping issues, and changing global conditions.

This customer does the design, engineering and prototype work at home.  Then, they know what it takes to work through first articles to establish production.  After that, their foreign manufacturing usually runs smooth.

Aside:  This customer has attempted some domestic manufacturing, but they struggle to hit the price points.

2. Factory Selection Can Matter More Than Country

Another customer found the quality of their foreign manufacturing is better than the domestic production.  Why?  This customer took a lot of time selecting the factory.  They sent me to visit factories, discuss needs, assess capability, set standards, etc.  The factory they chose wants to produce great quality.

Mostly the arrangement works well.  The issues they have include late deliveries – sometimes.  Because this customer is small, the factory tends to prioritize the demands of their larger customers.  It is a trade-off they would likely deal with domestically also.  Again, their success comes from managing the relationship.

3. A Prototype Is Not a Manufacturing Specification

We did a nice product design for a customer some years ago, then sent a prototype along with the CAD data to their chosen foreign manufacturing factory.  The factory promised parts in 6 weeks, so this customer made promises to their distribution based on that timing.  Sure enough, in 6 weeks the first articles arrived, but every one had a big scratch.

Since the scratches are deep, and all the same, it was a mystery.  The scratch is an "innie", so not a "scratch" in the mold (or it would be an "outie" on the part).  Very strange.

Finally, when looking at photos, we realized the prototype part we sent had this scratch - from a testing mishap.  Anyway, the foreign manufacturing facility duplicated the scratch in their mold.  Yes, amazing.  It was not on the CAD, nor on the drawings, but the parts exactly matched the prototype.

I thought, that's easy, it is an "outie" in the mold, they only need to polish it out, then we are good to go.  Right?  Unfortunately, it was another 15 weeks before the customer got good parts.  The delay created huge supply-chain problems because the customer missed promised deliveries.

4. Supplier Verification Can Become a Safety Issue

The client of our fourth example sourced their product offshore, with mostly good success.  Parts came, looked good, everything fit nice, and their end customers were happy.

Suddenly they started receiving terrible failure reports from the field.  Because the failures posed a HUGE safety risk, as more reports came, they began to panic.  Synthesis was called to help.

Working together, we isolated the problem as a manufacturing issue.  We discovered that a supplier to the manufacturer chose to substitute a weaker component - a 5200 lb capacity trailer axle instead of an 8000 lb axle - but disguised it as a full-capacity axle.  Since the machines operate around 7000 lbs, failures are no surprise.  The reasons don't matter.  In the end, that supplier choice gave our customer a big black eye, and put many lives at risk.

In this case, the supplier did not consider the true risk as they were trying to save a buck.  People could have been killed.  And, the receiving manufacturer did not realize or verify the parts coming in.  There is a certain vigilance required with foreign manufacturing and the liability is real.

Unfortunately, at Synthesis we have 2 more customers with similar issues, and we have heard many other stories.  We even made a test stand for one customer to verify their product.  See the Custom Machines page to view the test stand.

Supplier Ethics, Responsibility and Brand Risk

Do you have moral values conflicting with the way a potential vendor manufactures?  Things like pollution, or child labor, or working conditions?  If you do, then you should carefully consider some aspects of foreign manufacturing.

Think about the factory and your city.  Would you like to live by the factory that makes your widgets?  Do you have a strong allegiance to your country and decry other companies that send jobs offshore?  Something to think about.

Again, from experience, if the quantity is high enough, and you have time and resources to deal with the details, offshore manufacturing can be a real boon.  If not, consider the options, and learn before you buy.

Consider your values and how you brand your company.  There are companies who label products as "Made In USA", when only final assembly is done in the USA.  There are companies who tout "green" or "environmentally friendly" declarations, while employing foreign manufacturing to do the dirty work.  Careful choices up front will avoid embarrassment or market rejection later when (not if) customers find out about manufacturing.

Moral issues often fly under the radar, but when social media figures it out, whoa!  Depending on your company, and what you say you stand for, it can be a big risk.

I have a personal issue with some companies in the way they operate.  They sell trailer axles dirt cheap and claim they are made in USA.  When parts fail at levels below the specification, that is a problem.  I personally don't mind foreign-made parts, but I won't buy from vendors that falsely advertise their products.

Changing Manufacturing Later Is Expensive

Some companies that were first to push manufacturing offshore are now re-thinking and bringing much of it back.  Labor rates overseas have risen, and quality concerns have caused some rethinking about what goes out, and what stays home.  Because moving production later is expensive, manufacturing location is not a decision you want to learn through trial and error.

Once you start manufacturing, it is expensive to move production.  That is true of starting with domestic manufacturing then moving to foreign manufacturing, as well as the other way around.  Choose carefully.

Final Thoughts on Where To Manufacture

Is there manufacturing magic in China, Mexico, Indonesia, the USA or any other country?  Sometimes it feels that way, but there are wonderful, helpful, honest people in all of these places.  As I travel, I always find great people.

I don't understand most of the stereotypes - yes, other cultures have different customs, but they are people with goals, ambitions and friends just like everywhere else.  We are more the same than different.  Enough of my soapbox.

To assist product development customers, we have done cost comparisons with USA vs. Foreign Manufacturing, and some comparisons come in favor of a domestic manufacturer.  Other studies give the edge to manufacturing offshore.  There is no magic.  However, there are generalities that seem to hold:

• If the product is still being tweaked in development or if you expect running changes, keep it close to home.
• When a product will have large, consistent volumes over a long time, it is definitely a candidate for foreign manufacturing.
• If the product is time sensitive from order to delivery, especially if timelines are short, think domestic.
• Most successful companies maintain a positive relationship with their factories.  If you want foreign manufacturing, you have to be willing to invest both time and money in making it work.

There are so many variables in choosing, and your situation has its own unique factors.  As you consider it, please note that the decisions are not as easy as they first seem.  Go in with eyes open and be flexible.

We wish you good luck in finding a satisfying manufacturer.