Off-shoring - The Bottom Line

Today the BBC launched a year long project following a 40-foot shipping container as it begins its worldwide journe y from Southampton. The project, called The Box, will follow the container as it transports real goods, from car parts to footwear, in a genuine snapshot of global trade.

80% of goods arriving in Britain do so via container, and for every five full containers received, only one ships out.

Does this mean that the logical approach is for SME's to look east for their manufacturing requirements? Well I hear plenty of anecdotal evidence suggesting that the trend for off-shoring is actually reversing, especially among smaller OEMs so I spoke to a confident at a well known UK 'out-sourcing' company and asked their opinion.

I was surprised to hear at first hand how challenging and time consuming it is to work with an overseas manufacturer.

* Firstly, you have to find the right contractor, so no order should ever be placed without visiting the prospective production facility.

* Following the order, the contractor will then want their money up front before commencing procurement, which can easily take a week.

* Materials lead-time can then be up to 16 weeks and often may require European style components to be shipped out.

* Manufacturing will then be 2-3 weeks and shipping a further 4 weeks.

So there you have up to 30 weeks before the product begins to generate income from the original investment, and remember to add in a dedicated resource to manage the off-shore supply chain, which can be a full time job.

I was amazed to learn that this outsourcing company only has TWO customers for whom they import electronic assemblies from China. Most of their revenue is from smaller items such as electromechanical and wound components.

I questioned why more companies were not jumping to benefit from the savings that China could presumably offer. However this, I was told, was precisely the problem. Expectations of cost reductions are often not realised because OEMs take a far too simplistic view from the offset and do not realise the high costs associated with the supplier management. They are rarely able to forecast demand accurately for competitive batch sizes and are bewildered when a manufacturer will typically ask a hundred questions before commencing a build, with all the language barriers, cultural differences, time zones and legal systems at play.

There is little peace of mind even after delivery. Locally sourced components such as capacitors can have different characteristics over time compared with branded product, let alone the usual risks of sub-stand materials being used (take a look at the ERAI report on our website for the propensity of Chinese open market parts to be less than perfect).

So OEMs who are looking solely at the lowest cost often overlook other factors that give them the ability to serve customers rapidly with high-quality products.

To me the bottom line is, unless you are producing low cost commodity items, find yourself a good UK contract manufacturer!