For decades, products labeled ‘Made in China’ dominated the shelves as companies flocked overseas for cheap production. But the tides have been shifting as more businesses opt to bring manufacturing back to the USA.
With the question of where to manufacture being so crucial to sustaining any business, you don’t want your choice to be a knee-jerk reaction based only on a low sticker price. Or in reverse, to pay an unnecessary premium to keep your business local.
So, should you stay offshore or bring production back home? This guide examines the key factors to weigh when making this crucial call. We’ll dive deep into the most critical questions to ask yourself under each key consideration:
- Does Overseas Still Have the Pricing Edge?
- When to Consider Faster Turnarounds?
- Can You Ensure Consistent Quality?
Does Overseas Still Have the Pricing Edge?
Lower production costs are often the primary reason companies choose to manufacture abroad. But as overseas wages rise and domestic capabilities improve, the math isn’t as clear-cut as it used to be. When comparing the real-world costs of on versus offshore manufacturing, ask yourself these pivotal questions:
When Does Offshore Manufacturing Make Sense?
When products are small, light, and have high value relative to size, international air freight or container shipping may only minimally impact margins. For example, small electronics incur relatively low overseas shipping costs but benefit greatly from cost advantages in Asian production. The labor savings outweigh logistics expenses.
On the other hand, for some products, the labor cost savings from overseas manufacturing may not outweigh added shipping and import duty costs. Manufacturing domestically is beneficial for bulky or heavy products, like furniture, as the substantial overseas shipping costs outweigh savings on labor and materials.
What Volumes Do You Actually Require?
When it comes to large order quantities in the tens or hundreds of thousands of units, overseas factories have a competitive advantage because of lower labor costs. Their economies of scale are ideal for high-volume commodity products where ultra-low pricing is critical.
Alternatively, for startups or small batch orders under 5,000 units, domestic manufacturing can frankly be more affordable. By leveraging set-up processes, automation, and innovative production techniques, American factories can effectively compete with offshore pricing for smaller quantities.
The key is to carefully project your expected volumes, shipping and import duties; and to consider warehouse and inventory availability. Understanding these factors enables you to reduce your overall costs and have greater flexibility to pivot if necessary.
When to Consider Faster Turnarounds?
In addition to cost, production speed is a major differentiator between onshore and offshore manufacturing. Here are factors to consider regarding lead time in your location decisions:
How Quickly Do You Need to Respond to Market Changes?
Offshore manufacturing operates on long time horizons, with months of lead time required to adjust production volumes. The lag in offshore production timelines makes it extremely difficult to respond when demand fluctuates unexpectedly.
Meanwhile, domestic manufacturing compresses production schedules for faster turnarounds. Local suppliers can often increase output within weeks rather than months. During the pandemic, onshore manufacturers had a competitive edge as demand for recreational products like home gym equipment and art supplies skyrocketed.
When precise timing to market and speedy inventory replenishment are critical, the lead time advantages of domestic manufacturing often make paying higher per-unit production costs worthwhile.
When Is Overseas Manufacturing Optimal?
Some overseas regions still have abundant unused manufacturing capacity and infrastructure to fill, unlike domestic production capabilities which are often maxed out. This excess capacity reduces queues and delays. Furthermore, experienced manufacturing workforces familiar with streamlined processes may already be in place abroad, removing the ramp-up time required domestically.
Additionally, more relaxed regulatory burdens in some regions allow greater production flexibility and acceleration compared to highly regulated US environments. Less stringent regulations and bureaucratic hoops may enable faster factory modifications or expansions compared to the lengthy domestic review processes.
Can You Ensure Consistent Quality?
Many assume overseas production means lower quality, but this is not always true. Some regions achieve manufacturing standards rivaling local production. If you manage and validate consistent production quality, you can overcome obstacles like physical distance and cross-cultural differences.
How Will You Verify Production Quality?
Both local and overseas manufacturing allow you to implement rigorous quality control processes. The greater challenge with offshore production can be verifying that these standards are consistently met when you lack direct oversight. For more complex cases, you may even need to station staff abroad to monitor offshore vendors. You also have to navigate cultural and language barriers that affect your production and communication strategies.
Whereas domestic facilities enable random site inspections and controlled inventory testing before shipment, offshore quality validation relies more heavily on documentation review and pre-production process audits.
How Can Supply Chain Density Boost Quality?
Some overseas manufacturing hubs benefit from extremely robust supply chains for sourcing high quality inputs locally. Being geographically close to component and raw material suppliers reduces quality issues that can be unfairly associated with sourcing internationally. Reliable access to top-notch materials locally ensures production consistency.
Additionally, decades of serving as the “world’s factory” have allowed manufacturing regions like China to accumulate significant process expertise and experience. This ingrained knowledge enables manufacturers to continually refine and optimize production to achieve exceptionally high quality standards.
All things considered, wherever you manufacture, ensuring quality consistency requires upfront verification and ongoing care.
To offshore or buy local?
There’s no one-size-fits-all answer when choosing between domestic or overseas manufacturing. The best location depends on your business’s unique priorities, volumes, product complexity, and risk appetite. Rather than reflexively defaulting to familiar offshore production or local manufacturers, businesses should objectively analyze their specific needs.
For innovative products requiring rapid iteration, domestic manufacturing may provide speed and versatility advantages that warrant higher costs. But large, commoditized runs still benefit from overseas economies of scale. With in-depth analysis and guidance from experts, you can tailor your manufacturing plan to your strategic vision so that you can unleash your products’ full potential.
Feeling stuck in the middle of the on versus offshore debate? When you partner with an experienced product design firm like Beyond Design, our decades of knowledge offer valuable insight into the best manufacturing practices for your business. We become an extension of your team to guide you in making the decisions tailored to your product.
Contact us today at firstname.lastname@example.org to discuss which options may be best for you.