Manufacturing in China is Overrated

 

Viewed as the holy grail of low cost manufacturing, China has long been the ultimate goal of scaling manufacturing with the promise of high volume, low costs. Seems like everyone is in a rush to move their manufacturing to China. Those looking to move production overseas should take a minute to really consider the benefits and risks. They might just find out that much of the information about the benefits of Chinese manufacturing are outdated or not worth the risks that are associated with it.

 

Cost

Is it really cheaper?

A Boston Consulting study shows that there really isn’t much difference in the cost of manufacturing in the USA vs. China anymore. Over the last decade, the cost savings have basically disappeared. This is because of the increased labor cost associated with higher employee wages, better working conditions and increased cost of raw materials and energy. Just over a decade ago, a product that would cost $1 to make in the USA only cost 86.5 cents in China (23.5% savings). Today, a $1 part will cost 95.6 cents in China (4.4% savings). The USA has quickly closed the gap with the use of advanced manufacturing techniques and increased productivity.

 

Don’t for get the shipping cost. One company that looked to manufacture in China but decided against it estimated that shipping would add an additional 20-30% to the product cost. Of course this depends on many different factors but shipping cost should not be overlooked when looking into off-shoring.

 

Speed

How fast something can be made and shipped is very important for many reasons. Of course, this is obviously important for how quickly you can get your product to market but it is also important for your supply chain. In many cases, shipping is one of the differentiating factors in delivery times. Getting the components to the manufacturer as well as shipping the final to you. Many times, the manufacturing can be done as fast or even faster in the U.S. so no gain by offshoring to China. Now factor in shipping times from China for the final product can take 2-3 months if sent by ship to keep costs low. Now you supply chain from production to receiving final product is 60-90 days longer by manufacturing in China.

 

Quantity

This is a big one that gets many companies that are just starting out and ramping up demand. Most Chinese manufacturers have a minimum order quantity for them to take the job. It is not worth their time to make a few hundred parts for you. They will require you to commit to a much larger quantity upfront. This is common in the U.S as well with many of the large manufacturers but there are many options for small and medium manufacturers who will work with your order size and will be able to meet your needs when you scale or already have established partnerships to help you.

 

Inventory Management

If it takes 30 days to have a product made, your production volumes must be decided a month in advance. Now add in the 2-3 months shipping time from China. If there is a change in demand, either up or down, you can be unable to meet demand or stuck with a large amount of overstock. Naturally, you do not want to run out of product so you will over order to ensure inventory.

 

Expertise

Manufacturing in the U.S. allows for easy collaboration and the ability to leverage the expertise of the manufacturer. You both speak the same language and able to easily communicate. In addition, U.S. manufacturers are always willing to offer suggestions on ways to improve the process based on their experience. These suggestions could help improve the performance of your product or reduce the manufacturing cost.

 

Customer Service

One of the most important factors on customer satisfaction for any service is responsiveness to problems and questions. This is one of the differentiating factors between U.S. and Chinese companies. In the U.S., most businesses work quickly to resolve any issues with their clients. In many foreign countries, this is not the case. It can be very difficult to resolve the issue and will result in pointing fingers and fights over whose fault it was and who’s going to pay.

 

Reliability / Quality

We have all seen the press around products made in China that are subject to recalls. Products tainted with prohibited chemicals. Parts made out if inferior materials. Many times, the quality of the parts from China suffers reduced quality over time. Forbes magazine calls this China’s ‘Quality Fade’. So what is the solution? You can hire someone to be at the manufacturer full time or possibly outsource final product testing to a 3^rd party, but both of these add additional cost and is questionable how much risk they actually mitigate. I’m not saying that this doesn’t happen in the U.S. but the reported cases are significantly lower. 2013 statistics show 2,124 product recalls from China compared to just 685 from the United States.

 

Brand Image

Made in the USA still carries weight with the customer. Being able to prominently market a product “Made in the USA” can help boost sales. Some companies have tried to put a spin on this such as Apple. Look at the back of an iPhone and you will see “Designed by Apple in California. Assembled in China.” Apple appears to be still trying to capitalize on supporting USA jobs. In the worst case, being made in China can actually prevent a sale.

 

IP Protection

This is basically non-existent in China. It doesn’t matter what patents you have, if your product is a success, expect to have counterfeits produced. China accounts for 87% of the counterfeit goods seized by US customs. A article looking at Beats headphones bought at Target and Amazon turned up counterfeits. How to do many of the companies that manufacture in China prevent this? Some have been successful doing this but many have not. One of the methods is to make sure no single vendor has enough information to copy your product. This involves sourcing multiple vendors yourself and controlling the flow of information to each one.

 

 

So before you rush off to make your next product overseas, carefully weigh if that is the right choice. Is the 5% savings from manufacturing worth the higher shipping cost, longer lead times, questionable reliability, quality issues, supply chain headaches, customer service problems, potential IP problems and lack of the opportunity to increase your brands image with Made in the USA?

 

We would love to hear your experience with manufacturing in China or the USA!