Has your company actually done a comprehensive benefit/drawback analysis of how overseas manufacturing is affecting your entire bottom line? Everything from branding, to lower ROI can result from outsourcing to reduce manufacturing costs. Often, savings on the production end can result in losses further up the supply chain including quality issues, inventory inhibiting sales, and loss of revenue and intellectual property due to corruption and theft.
Continue reading to learn about rarely discussed factors of overseas manufacturing that might be actually hurting your business more than helping.
Quality issues hard to resolve quickly.
Two of the biggest problems with overseas quality control is proper training of foreign employees, and establishing and maintaining proper processes. Employees can and do make mistakes, and proper translation from one language to another, particularly English to Asian, is never foolproof. We’ve all experienced this to a degree when dealing with outsourced customer service, right? Growing pains are inevitable in any business. Not to mention, wages in China continue to rise. India has kept worker wages steadily at poverty levels, while productivity in that country still fails to impress in many sectors.
Can your business afford to wait another month for replacement Red Widgets because of an extruder malfunction in your factory in Shenzhen, China? These issues are much harder to resolve with thousands of miles and up to 20 hours (one way) separating headquarters from manufacturing facilities. Minus language barriers and extreme distances, glitches can be caught and corrected quickly, increasing sales and reducing irrevocable branding issues.
Overseas manufacturing and inventory issues.
On a mass scale, it’s impossible to ship things quickly from Asia to North America or the UK. Forget about the time spent manufacturing actual products, shipping is often accomplished via sea containers in order to keep costs down. Shipping faster via air can destroy margins and make overseas manufacturing cost-prohibitive. People shop on Alibaba because they’re cheap and willing to wait — and you can’t compete with Asia’s Amazon equivalent.
There’s far too much competition out there to expect a customer to wait 4 – 6 weeks for a Purple Widget. Purple Widgets were rare 10 years ago, but there are hundreds of companies selling them now. A local, national, or international company can’t sell what they don’t have in their possession. This means if you don’t have physical inventory for online and offline brick-and-mortar sales, with the ability to ship quickly (Ie., overnight is the current standard in online sales), you’ll lose the battle to retailers like Amazon Prime.
You have to compete with the contractor’s other customers for priority.
Quality and inventory issues aside, you’re here and they’re there (wherever that may be). Just how well does your company compare with the manufacturing contractor’s other customers? If you’re outsourcing the manufacturing of wheat-grass-flavored energy drinks in India, how do you know Monster Energy isn’t working with the same canning or bottling outsourcer you are?
Outsourced manufacturing comes down to dollars and cents for all parties involved. If a bigger client hits your manufacturer with a sudden massive order, or demands faster turnaround on their products, who do you think they’re gonna choose? Should they appease you, the smaller client, or ensure continued business with the bigger customer? In the end, someone loses and it could be you, leading to a halt in your inventory and potential increases in the quality issues mentioned already due to workers rushing through their work.
I can assure you I’m not a cultural bigot when labelling certain cultures as being prone to corruption. Bribery is the official unspoken rule in China. While many in modern North America and some parts of Europe have never experienced racketeering or the need to “grease the wheels” to get a project going, it’s very common in countries where poverty is the norm and wealth the exception.
If a corrupt politician or criminal organisation decide to shake down the factory where your products are made, or infiltrate a shipment on it’s way to you, you can lose everything or have a shipment held for ransom. This doesn’t help to keep costs lowered. Not to mention the theft of your intellectual property if a foreign manufacturing firm decides to copy and start marketing your products to your customers for rock-bottom prices. Don’t forget that laws are different wherever you go, and a US or UK patent may not hold weight in the Philippines, etc.
Here’s the real kicker…
As you can see, overseas manufacturing costs can add up when the stars don’t align in your favor. One last thing worth mentioning is the fact that you’re taking jobs from your home country and displacing them elsewhere. Many people would argue that this is greedy. However, regardless of the label you place on outsourcing, you are indeed contributing to raising the unemployment rates in your country.
If you think that it’s just the thing all the big guys have to do to dominate markets, think again. Check out this list of 10 US companies who’re choosing to bring jobs back to North America. Obviously, prices to the end consumer need to go up when outsourcing is reduced/eliminated. But do they really?
If necessity is the mother of invention, consider what your company would do if it were necessary to keep your manufacturing in-country. Such as if Donald Trump keeps yet another election promise and imposes import tariffs on countries like China and Mexico?