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How to choose between domestic and overseas procurement?
Start with the fact that where you choose to manufacture a product is about as important as the manufacturer itself and its products. That’s because so many of the factors involved are beyond the scope of any manufacturer.
So what are the advantages and disadvantages of foreign and domestic locations? Let’s get right to the point:
Advantages of using domestic manufacturers
Shorter lead times.
While the time needed to produce a product is roughly the same here and overseas, the much shorter shipping times, in effect, give the clear nod to domestic companies.
Lower shipping costs.
This can significantly offset the higher costs of domestically-made products. Local shipments reach customers much more quickly, enhancing their satisfaction (while waiting for something to arrive from overseas can b maddening).
Keeping a closer eye.
Whereas it’s costly and time consuming to monitor a manufacturer in, say, China, having a local manufacturer enables you to build stronger relationships and to be close enough to check things out in real time. If an issue suddenly comes up, the people in another country assigned to help you could be fast asleep.
Better communications.
Even when you deal with English-speaking employees of an international manufacturer, it’s still not quite the same as someone here. It’s said that communication is the most vital factor in manufacturing, and there is much truth in that. Poor communication can throw a wrench into everything.
Higher standards.
Domestic manufacturers are obligated to perform at a higher level than their foreign counterparts to meet our stricter government regulations. Naturally, this results in higher costs, as do the much higher wages demanded by local workers. It’s a trade-off between quality and price that only you can decide between.
Greater consumer acceptance.
Americans love to see “Made in America” attached to products, and they’re more inclined to develop a loyalty to such companies. You can expect better local press coverage, too.
Greater stability.
Generally speaking, you can rightfully expect local manufacturers to deliver quality products on time – and not be disrupted by shocks to the political system, for example, that do take place overseas.
Disadvantages of using domestic manufacturers
Custom Manufacturers
The skilled labor force in the U.S. comes at a price considerably greater than what overseas workers get. (Consider that the average Chinese factory worker gets paid around $2 USD an hour compared to over $23 USD in America.) While that’s a positive for our workers, it’s a negative for companies wanting to keep costs low.
Lower production capacity.
If you need high-volume manufacturing, you’ll have a better chance to finding the right company for you beyond our borders. Not only can they pump out product like a firehose, costs per unit are way below our own. And if you do find a qualified domestic manufacturer – which can be problematic – its costs will be significantly greater.
Fewer capabilities and resources.
Foreign manufacturers tend to actually have greater technical capabilities in the area of high-volume production, and in many cases, they have access to more resources and sources for materials as well.
Advantages of using international manufacturers.
Cost, cost, cost.
Without question, foreign companies can deliver most products at extremely low costs, far below than what domestic companies can offer. Called “global sourcing,” it typically originates in a well-developed country like the U.S. or Canada then involves an under-developed country like India or China.
Greater range of capabilities.
U.S companies tend to be limited when it comes to making a wide array of products with wide margins of quality. Overseas companies, by contrast, can make everything from high-end luxury goods to cheap trinkets.
Superior production capacities.
The ability of foreign companies to produce vast quantities of product is unrivaled by the U.S. Due to intense competition among rival manufacturers, those companies have the incentives to continually upgrade equipment and facilities.
Disadvantages of using international manufacturers.
More expensive shipping costs.
This can be a major factor in driving up product prices. Perhaps just as critically, shipments from overseas can be frustratingly long. Neither brings happiness to the end user.
Local taxes and tariffs.
It pays to learn about these expenses well before making any commitments. They could figure into your entire pricing strategy to a much greater degree than you anticipate.
Political instability.
There’s nothing like a riot or an airport closure – or even attacks by pirates – to wreak havoc with your supply lines. Once disrupted, supply lines can take a very long time to be reestablished. No wonder markets put such great value on stability.
Relationship challenges.
Your managers may need to spend a lot of extra time in mentoring, monitoring and building relationships with suppliers. Virtually every company is a “people company” so much will depend on how your people interact with those in foreign lands.
