What Manufacturing Processes are Most Popular Overseas?
What Manufacturing Processes are Most Popular Overseas?
November 24, 2015
Although the trend to offshore manufacturing jobs appears to have peaked, many American companies continue to move production from the U.S. to foreign countries, usually in the belief that this will reduce labor and manufacturing costs. Research indicates that while there are clear benefits for some industries, offshoring is not always the panacea it’s made out to be. Further, as manufacturing costs overseas rise, it seems that the trend towards offshoring may be slowly reversing.
Popular Overseas Processes
For many years there has been a clear preference for the overseas sourcing of high-value merchandise such as computers, semiconductors and other easily transportable goods where the cost of transport is relatively low compared to the manufactured cost. Other manufacturing processes that are popular are high-volume, low-value items, especially if the initial set-up costs are high. The impact of years of outsourcing on American manufacturing skills also appears to be a factor behind offshoring; manufacturers reportedly find it difficult to recruit skilled employees due to the numbers who have moved into other occupations.
Are The Benefits Worth It?
Apart from the relatively small number of high-tech organizations that have a long tradition of offshoring the production of items for the American market, there seem to be mixed benefits. While some manufacturers claim significant cost reductions, others are finding that the quality issues lead to higher warranty costs. Additionally, inventory costs are higher due to the need to hold greater stocks because of longer lead times as well as the fact that some of your inventory is still being shipped. One characteristic of overseas manufacturing processes that causes major problems is the need to place orders much earlier than would be the case with American-based production, which may lead to an over- or under-stock situation as a result of changes in demand that occur after orders are placed.
Future Trends
It seems that American manufacturers’ reluctance to change means a very high percentage of manufacturing is still being done overseas. This is despite relatively rapid rises in overseas wage rates. Unless this is carefully managed, these increases in labor costs coupled with the significant risk of adverse currency variations means the apparent cost benefits may be reversed. Companies that intend offshoring should be careful to review both the short- and long-term implications of offshoring so as to avoid the potential risk of being caught in a catch-22 situation.
