Offshoring to China More Expensive Than United States
Offshoring to China is now more expensive than building in the United States (for the United States). Using objective 3rd party databases and actual prices we demonstrate why building "in region for region" is now the hottest trend in outsourcing.
By some estimates 2-3% of US companies are embracing reshoring each quarter and the trend is accelerating. The trend has been led by companies frustrated with the many hidden challenges of offshoring. But now the most savvy OEM's are realizing reshoring is actually a cost reduction opportunity. Here's why.
The Example Product
For this project we chose a PCBA that most OEM's would consider an obvious candidate for China. The product is approximately 1"x2" with a BOM cost of $24.62 and annual volume of 250,000 units. There are 136 SMT placements including several BGA's and no through hole.
Calculating Benchmark Prices
To calculate benchmark prices we use models and data developed by Charlie Barnhart Associates (CBA), which to our knowledge are the most comprehensive and accurate available. Based on CBA models, here are the expected prices and cost breakdowns for this product if built in the US or China:
A fuller description of how contract manufacturing prices are calculated is available here.
Calculating Total Cost of Ownership (TCO)
Total cost of ownership (TCO) calculates the cost of the product when all outsourcing costs are applied. TCO is the gold standard for understanding true total cost and comparing TCO for various outsourcing alternatives is the most accurate and complete method of evaluating outsourcing solutions. For this example we use the TCO calculator developed by the Reshoring Initiative. This calculator has been endorsed by the US Department of Commerce.
The TCO calculator relies on a range of inputs and assumptions which may or may not be valid for your company. We have tried to be conservative in estimating outsourcing costs, you can view the full TCO Report here.
As the example demonstrates, a company currently outsourcing this product to China can save 9.3% by reshoring.
Further, certain US contract manufacturers are adopting financial and efficiency models which allow them to compete nearly head to head with Chinese suppliers. Optimum resells this example product at $33.80 even though we manufacture in California.
If you would like to see these models applied to your specific circumstances, contact us and we will provide you with a custom Benchmark Report.
This post originally appeared on the DigiSource Blog