By Bill Laursen, Senior Vice President, Sales and Strategy
It is common for prospective customers to ask us why they should use a contract manufacturer in the US, rather than taking advantage of lower labor rates offered in Asian countries. Rising Chinese labor rates are increasing manufacturing costs across Asia, narrowing the gap between Asian firms and US contract manufacturers, like Coghlin Companies.
The Economist recently investigated the total cost of production in America, including shipping, customs, duties, and other fees, and found that California was only about 10% more expensive than China. Add in soft costs, like travel and other miscellaneous indirect overhead, and the benefits of manufacturing in Asia are beginning to dwindle quite rapidly. As soon as 2015, it will cost about the same to manufacture in the US as in China, particularly in the electronic, machinery, and electrical equipment industries.
At the Coghlin Companies, we demonstrate to our clients that even when offshoring and reshoring prices are nearly equal, there are many other factors to consider when deciding where to manufacture your goods with a US supplier. These factors can affect your product quality, flexibility, and end user satisfaction. The decision to offshore is made by many companies who focus adamantly on labor costs, and may not realize the hidden costs of their decision. It is expected that the outflow of manufacturing from high cost to low cost countries will slow over the next two years, and reshoring will double over the previous two years.
When contract manufacturing in the US, you have intellectual property protection. You operate under familiar US laws and regulations and are assured of compliance with labor laws, avoiding the taint of contracting with a firm that uses unethical labor sources or engages in other human rights violations.
Using an American-based contract manufacturer gives you the capability to produce the volume you need to respond to actual market demand, as opposed to buying higher volumes solely to optimize shipping rates. Longer shipping times require significant supply chain involvement to manage interruptions of delivery. Shorter transit times, and appropriate product volumes, allow your goods to get to your customers faster, with no extra inventory sitting on the shelf tying up valuable resources.
At Coghlin, we also understand that it is common for Engineering Change Orders (ECOs) to be required in the final phases of a product launch. Working in the US, you eliminate potential miscommunications caused by time zone and language barriers during the setup of your project and when addressing ECOs. You also avoid long waits for prototypes and modified products, shortening your time-to-market schedule.
Combine a large quantity order from an overseas contract manufacturer with ECOs, and you may have just sunk huge costs into obsolete inventory.
Give us a call at Coghlin to discuss the advantages of using an American contract manufacturing company for your product.