By DE Editors
According to two experts who spoke at the recent 26th annual International Forum on Design for Manufacture and Assembly (DFMA), the job solution lies in recognizing the hidden costs of offshoring and embracing “upfront engineering” as a business model for innovation and profit creation.
“Traditional corporate and enterprise accounting systems do not generate total cost of ownership (TCO) data for companies locating or sourcing overseas in search of the lowest labor cost,” says Harry Moser, founder of the Reshoring Initiative and retired president of GF AgieCharmilles.
“When total cost of ownership is calculated,” he says, “most companies headed offshore find that they have saved maybe 10%, rather than the 30-40% they based their decisions upon. When TCO analysis is combined with DFMA product redesign and Lean Manufacturing programs, we’re learning that the gap can close or disappear today — and will definitely close in the next few years.”
The Reshoring Initiative offers free software and an online library of 98 articles to help companies construct a clearer view of the competitive landscape between the U.S. and LLCC’s (low labor cost countries).
Dave Meeker, product consultant and lecturer at MIT, updated a co-authored study from 2004 on the hidden costs of offshoring and shared his views from the same podium as Moser.
“Seven years later, the problem of not accounting for total cost continues for most companies,” says Meeker. “Labor is the common metric businesses pick in deciding to take production overseas. Yet, the largest slice of the cost pie is not really the labor content but the material and manufacturing process choices engineers make.”
“Then, as well as now,” he says, “redesigns using DFMA show that assembly labor can be reduced an average of 45% while creating better functional designs. Add a very conservative 24% to offshored product costs to cover logistics, supply chain management and other expenses, and the playing field begins to shift. The evidence suggests that we can start to engineer our way out of the offshoring problem by streamlining designs and understanding the real costs.”
Regarding the reshoring of manufacturing back to the U.S., Gilligan noted: “The best-performing and highest-quality products are always less labor intensive to assemble. When all the costs of doing business are considered, DFMA can help companies stay onshore by helping engineers design products that are cost-effective to build anywhere, without chasing the lowest offshore labor rate.”
Sources: Press materials received from the company and additional information gleaned from the company’s website.