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blog | December 11, 2015

The High Cost of Manufacturing Overseas – Why so many manufacturers are moving back to the United States

After decades of transferring manufacturing production overseas, many manufacturers have begun to rethink this decision. Now, many manufacturing companies are making the move back to the United States. For...

By WorkWiseSoftware

After decades of transferring manufacturing production overseas, many manufacturers have begun to rethink this decision. Now, many manufacturing companies are making the move back to the United States.

For many years, it’s been common practice for many manufacturers to move production overseas to countries like Malasia, Mexico and Taiwan. And many manufacturing companies defended their decisions by claiming that the move would be the only way to help save money and allow them to stay competitive in the global market.

However, these moves have been sharply criticized by unions and economists alike for a long time. Many experts have argued for years that moving manufacturing jobs overseas eliminates valuable American jobs. Others have maintained that moving offshore manufacturing erodes the industrial foundations that the United States’ economy was built on, and ultimately threatens the standard of living for all Americans.

Companies can usually save money on labor and materials by purchasing materials or moving manufacturing labor overseas… at first. However, other hidden costs may pop up that might cancel out any money that was initially saved.

For example, offshore sourcing usually means bigger inventories and more expensive administrative costs. Quality costs are also higher, as many parts made overseas aren’t made to meet specifications. The cost of transportation can be extremely high, not even including the cost of fees and tariffs. Even the cost of training foreign workers can be extremely expensive. Longer lead times and stolen intellectual property is also extremely common.

Even for individual companies, moving labor overseas simply is not the magic remedy that they had expected it to be. At best, the decision to do so inevitably winds up being nothing more than a short term solution to cutting costs, rather than working to improve inefficient practices and waste. The move overseas can often come with many unexpected costs and roadblocks for manufacturers, which can make the endeavor much more expensive than they originally anticipate.

Moving overseas can also impact company performance. Some companies are slower to respond to market demands, since the time it takes to ship items and materials is much longer.

The bottom line is, the advantage that companies get from moving overseas simply doesn’t last. The only time that offshore manufacturing can realistically offer savings is when foreign wages are low, trade barriers are absent, and the dollar is strong. However, none of these are factors that a company has any control over.

American manufactures are starting to realize that going offshore isn’t their only option. Many companies have instead opted to boost their competitive position at home. This has given them an advantage in the long-term by improving their manufacturing practices and making positive changes to the way they do business.

Some of these changes include things like reducing overhead, eliminating unnecessary middle management positions, reducing operating and expense budgets, increasing efficiency in their operations and product lines, reorganizing, increasing R&D expenditures, investing in new technology, releasing new products, improving quality and becoming more cost efficient. By making these changes, many companies have saved millions of dollars.

Other companies have turned to automation to reduce costs. Automating manufacturing, operation, and materials handling can also save companies millions of dollars in costs, and helps make their operations more efficient and productive as well.

Manufacturing companies should begin to acknowledge that offshore producing just doesn’t represent a solid long-term strategy. At best, it’s just a short term solution that buys time for businesses to resuscitate their competitive edge. Unless they are able to break free from previous methods and traditions within their company as a whole, manufactures can’t expect to become world competitors. Instead, companies that are able to embrace change, treat their employees well and build loyalty with them, and focus on efficiency and continuous improvement will be able to compete in the global market.

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