Pros and Cons: Foreign Manufacturing or Domestic?
It’s a dilemma: Should you get the widget made offshore? Or at Home? There are a lot of interrelated and complex parts to answering this question, so, How do you choose? We’ll talk about a few pro’s and con’s of Foreign Manufacturing vs. Domestic — from the Engineer’s Perspective.
Offshore (Foreign) Manufacturing
What we call “Offshore Manufacturing” has less to do with oceans as the phrase implies (though it fits many instances). It is, perhaps, better termed “Foreign Manufacturing” meaning not produced domestically. “Offshoring” is another term for moving processes out of the country. Either way, these mean the country of design origin and intend consumption is different than the country where manufacturing is done.
The trend in the last many years (especially in the USA) is more and more manufacturing in other countries. In public there’s talk of keeping things at home, but reality still sees a lot of manufacturing where regulations are lax or labor is cheap. Of course, there are dozens of arguments about whether this is good, but I’ll leave that for later.
There are advantages and disadvantages for sure. In our experience with foreign manufacturing, some customers have success and others not so much. What’s the difference? Let’s look at both with an eye to averting disasters.
Foreign Manufacturing Decision Points:
In general, we get kind of spoiled by purchasing goods from all over the globe. We see things on the internet, and easily buy them even though they come from elsewhere. It comes in a box and we don’t think much more about it. What we don’t see is the network behind the scenes that makes it happen. When you start manufacturing offshore, you get to manage that network (or hire someone to do it).
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, etc.), timing issues, factory delays, special holidays, . . .
- Then the practical side like:
- How well do you speak the language?
- Do you know the trade and business customs?
- Who do you know to guide you?
- Can you find a fair, reliable agent to handle things? If so, what do they charge?
- What resources do you have to assure quality? (And, What happens when you get a container load of widgets that are not right?)
- An unscrupulous factory might make shortcuts in production to save a buck. (Yes, this can happen anywhere, but it seems to happen more when the manufacturing facility is far from the customer. Especially when legal recourse is less likely.)
- How much control do you want over the product? Over quality?
Is this negative? No. Foreign manufacturing adds a layer of complexity, and cost-benefit, is not just money. We talk about these and more in the Production Chapter of the Product Development Process. So, how about some first-hand examples?
Positive Offshore Examples:
- One of our customers does all of their manufacturing Offshore. They have a few select factories in China that produce the bulk of their product — 10’s of thousands of pieces in dozens of skews. On the whole they are quite successful, but it doesn’t go without some hiccups. Their challenges include:
- Scheduling and 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 some money on their end without telling the customer). Sometimes the fall-out of these situations is painful and expensive.
- Prototyping and new product delays.
This customer knows they must do all the design, engineering and prototype work at home, then when things are complete, they can show exactly what they need. Then, they know it takes some time to work through first article issues to establish production. After that, manufacturing usually runs smoothly.
This customer has attempted to bring some manufacturing back domestically, but they struggle to hit the needed price points.
- Another customer found the quality of the foreign manufacturing parts is better than those produced domestically. Why? This customer took a lot of time selecting the factory. They sent me to visit factories, discuss needs, assess capability, then they chose a factory that has great quality. Timely delivery is sometimes an issue because this customer is small for a factory with many demands.
Ugly Foreign Manufacturing Examples:
- After design, this customer sent a prototype along with CAD data to the chosen 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). 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. Amazing. Unfortunately, it was another 15 weeks before the customer got good parts. Timing for this client created issues by not meeting deliveries.
- Another client sourced their product offshore, with mostly good success. Suddenly they started receiving terrible failure reports from the field. Because the failures are a HUGE safety risk, as more reports came, they began to panic. Synthesis was called to help. Working together, as we isolated the problem as a manufacturing issue. We discovered that a supplier to the manufacturer chose to substitute a weaker component — 5000# capacity instead of 8000# — disguised as full capacity. Since the machines operate around 7000#, failures are no surprise. The reasons don’t matter. In the end, that choice gave a big black eye. In this case, the supplier put lives at risk trying to save a buck, and the receiving manufacturer did not realize or verify the orders. Unfortunately, at Synthesis we’ve had 2 other customers with similar issues and heard many such stories.
On The Moral Side
Do you have moral values conflicting with the way a potential vendor manufacturers? Things like Pollution, or Child labor, or Working conditions? If you do, then you should consider carefully some aspects of foreign manufacturing.
Think about the factory and your city. Would you like to live by it?
Do you have a strong allegiance to your country and decry other companies that send jobs offshore?
Again, from our experience, if 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 how much of a headache you are willing to accept. Basically, learn before you buy. Careful choices on the front will avoid embarrassment or market rejection later when (not if) customers find out about your manufacturing.
Some companies that were first to push manufacturing offshore are now re-thinking and bringing some back. Labor rates overseas have risen, and quality concerns have caused some rethinking about what goes out, and what stays home. Since this is a big decision, it’s not an exercise to learn WHY as it pertains to your new product.
Once you start manufacturing, it’s expensive to move production. That is true of starting domestic and moving to foreign manufacturing or the other way. 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, and 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’re more the same than different. Enough of my soapbox.)
To assist 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 an offshore source. There is no magic. However, there are generalities that seem to hold:
- If the product is still tweaking with development or if you expect running changes, keep it close to home.
- When the product has large, consistent volumes over a long time, it’s 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 I have worked with, have specific factories doing production, and they go there frequently to maintain a positive relationship.
There are so many variables in choosing, and your situation has it’s unique factors. As you consider, just note that decisions are not as easy as they first seem. Go in with eyes open and be flexible.