The Math of Manufacturing – How Total Cost of Ownership Impacts Reshoring Decisions
Written by Casey Cephas
It’s not often that the supply chain enters the mainstream conversation. However, between product shortages and inflation making daily headlines, consumers and other non-manufacturing folks are all wondering, “What’s going on?” and “Why does everything have to be made overseas?”
For nearly 50 years, the answer to the second question was simple: price. Many American companies assume that offshore manufacturing is the cheapest way to make products and boost profits along the way. But that assumption is rightfully being challenged due to rising overseas labor costs, ongoing supply chain issues, and other factors.
On a recent episode of our Better Product Solutions Podcast, we talked with Harry Moser, the founder, and president of the Reshoring Initiative. During the conversation, Harry introduced the concept of Total Cost of Ownership (TCO). By his estimate, about 20-30% of imported products would actually be cheaper if you considered all the costs involved, not just the Free on Board (FOB) price.
In this article, we’re focusing on why U.S. companies should adopt the TCO approach – and offer a practical tool you can start using today. If you’d like to hear our entire conversation with Harry Moser, click here.
Benefits of reshoring
Before we get into the details of TCO, it’s important to note that the final price is just one reason to consider reshoring. There are many reasons why companies decide to use a U.S. manufacturing partner, including:
- Higher product quality and consistency
- Shorter and more reliable lead times
- Reduced intellectual property and compliance risks
- Quicker response to customer demand
- Reduced freight costs
- Lower inventory demands
- Better communication and collaboration to enhance innovation
- Ability to market an American-made product
- Reduce waste and improve sustainability efforts
- Strengthening the U.S. economy and improving workforce inequality
Why consider the total cost of manufacturing
To help explain the concept of TCO, Harry uses the personal example of purchasing a new vehicle. Most people will base their decision on the sticker price. But if you factor in long-term factors like fuel efficiency and anticipated repair costs, the “cheaper” vehicle may surprisingly cost you more in the end.
The same principle applies to the Total Cost of Ownership of manufacturing. The FOB price is only one factor in the overall cost of a product. Many other hidden costs to consider include freight, duty, inventory, tariffs, purchasing operations, and plenty more.
How to calculate the total cost of ownership
If it sounds overwhelming to combine all these areas to determine your TCO, don’t worry – there’s a free, easy tool that can help.
The Reshoring Initiative’s Total Cost of Ownership Estimator® guides you through a comprehensive system to identify all the costs associated with offshore and U.S. manufacturing. The estimator will ask you 36 questions about your product and needs, then uses a wide range of factors such as price, weight, quantity, IP concerns, natural disaster risk, and more. The results page provides transparent cost calculation formulas, and the credible tool is recognized by the U.S. Commerce Department.
Improving market competitiveness with Tapecon
Even before the pandemic, there has been a renewed interest in reshoring to reduce overall costs and regain control over the supply chain. Some of the top industries reshoring and creating new American jobs are transportation equipment, electronics, medical equipment, appliance, and machinery.
At Tapecon, we provide advanced manufacturing for many of these industries (and several others). Based in Buffalo, New York, our approach isn’t just to produce high-quality products through custom converting and industrial printing – it’s to add value to every project through materials expertise, design consulting, prototyping, assembly, and more.
Let’s make something great
With over 100 years of manufacturing experience, Tapecon works with product teams to solve challenges, create products, and enhance lives. Learn more about our contract manufacturing capabilities.