Situation: A company has built a very successful specialty manufacturing business in the US. Their manufacturing operations are labor intensive, with manufacturing practices optimized using motion studies and sharing best practices developed on the production floor. The CEO is evaluating whether it makes more sense to expand production in the US or to explore international options. Do you produce domestically or internationally?
Advice from the CEOs:
- There are trade-offs between domestic and international production. Quality labor is available internationally at lower costs than in the US. However, risks include potential loss of quality control and higher levels of waste.
- While investigating international production options, focus first on less critical operations where savings from lower labor costs outweigh the potential cost of wasted material.
- Do not try to move highly controlled operations. These will include critical operations which require both an elevated level of operator skill and close supervision.
- Before evaluating international options, break down the steps of manufacturing or processing to identify specific subcomponents or subprocesses that could be outsourced at reasonable risk.
- For example, look at high volume parts where quality and variation in tolerances is less critical. These will be the best candidates for production in a lower cost, potentially lower quality environment.
- How critical are trade secrets or patented IP to production? In the US and Europe there are strong protections for IP. However, these protections are not as strong in all countries. If production is outsourced to countries with poor IP protection, this may enable IP theft and create future low-cost competition.