Friday, September 02, 2011

Is PRChina Cost Really Cheaper?

Complementing a recent study by a large business-consulting firm, we have another which questions the "cheap" myth of manufacturing in PRChina.

...In a research paper on the subject presented at a recent meeting of Boothroyd Dewhurst's Design for Manufacture and Assembly International Forum in Providence, R.I., Meeker outlines many of the additional and hidden costs involved in shifting production to China. They find that they add up to 24 percent of the total product price, a conservative number that "does not include provisions for many of the risks and intangible costs that relate to specific products," he says.

Here's the critical difference:

Meeker and his colleague Jay Mortenson found that it is cheaper by 8 percent to produce a current design in China. There are substantial savings associated with purchased parts from China that include direct labor (79 percent savings versus U.S. labor rates), indirect labor and salaries (61 percent savings), benefits (75 percent savings), overhead (40 percent savings) and selling, general and administrative (SG&A) (11 percent savings).
When adding logistics to the China price, the cost advantage of producing in China shrinks to 8 percent: $13.85 for a case-study product made in China versus $14.99 in the United States. 

But when design for manufacturing and assembly (DFMA) software is applied to the same product, the China advantage vanishes. The China cost declines to $9.79 versus the U.S.-made product at $9.47.

IOW, the Barbie-doll design, established since--what, 1970?--should be made in PRC.

But if you're putting up a new product, and you apply real know-how in the design process, making it here is a MUCH better deal.  And that doesn't (apparently) count the inevitable tweaking-and-jiggling of the design which is usually prominent early in the product's life-cycle.  When you tweak-and-jiggle, having the engineering folks next-door to the manufacturing folks makes all the difference in the world--particularly when they literally speak the same language.

Much, much, more at the link.


Fr. Erik Richtsteig said...

I suspect that the PRC offers personal benefits to the executives of the companies that shift production there.

Dad29 said...


Recall that this whole PRChina thing was initiated during the '70's, when it was commonly held that 'lifting the economic boat' in PRC would make them fat and happy, and they would never do bad things (especially to the US), ever again.

AND recall this: the cost of labor in the US is only a small part of the overall cost-of-business here. We have EPA, OSHA, EEOC, SocSec, health-insurance, ....the list is endless....

neomom said...

Been in global sourcing for years and have seen the same in practice. The US manufacturing sector is perfectly capable of being competitive in the global market. Unfortunately, too many are focused on "price" instead of "cost".

Dad29 said...

Yup. You reminded me about the old question: "What's the cost of quality?"