The truth about outsourcing

May 1, 2005
Since the mid 1990s, the U.S. has been losing manufacturing jobs at an alarming rate. Nearly 3 million positions have vanished in the past three years

Since the mid 1990s, the U.S. has been losing manufacturing jobs at an alarming rate. Nearly 3 million positions have vanished in the past three years alone. Most of them have gone to China, where ridiculously low labor rates are just too enticing for the profit-minded people who run our companies.

What troubles me most is how we all sit by idly accepting this, as if it were inevitable. Like so many near-sighted bean counters we look only at labor rates, which obviously favor outsourcing, and conclude there's no getting around it. The truth is, many manufacturing jobs could be salvaged if corporate executives focused on engineering rather than labor. In fact, redesigning products and keeping them here — investing in engineering — is actually more profitable than moving operations offshore.

Now this is not just my opinion. These are the findings of a benchmarking study recently published by Boothroyd Dewhurst, a leading developer of DFMA (design for manufacturing and assembly) software.

The report begins by providing some insight into why so many companies are bolting for “greener” manufacturing pastures. “What we have in the U.S. today is a lemming mentality with regard to outsourcing,” says Nicholas Dewhurst, co-author of the study and executive vice president of the Wakefield, R.I., firm. “The leaders of Company A look at the competition and see that products are now being outsourced, so they feel they too must outsource manufacturing. The most dangerous part of this trend is that outsourcing overseas is often being done with little or no understanding of what the true costs really are.”

One of the biggest mistakes outsourcers make is that they fail to account for hidden expenses. All they see is the disparity in labor rates: twenty-some dollars per hour in the U.S. versus two dollars per hour or so in China. Unseen expenses, however, add up quickly — vendor selection, travel, shipping and logistics, quality issues, time zone and language barriers, currency exchange rates, pipelined inventories, and insurance fees. These associated costs add almost 24% to the price of a given product.

What's worse, says the report, is that many company leaders don't even know how much their products cost to make at home. “We know from years of consulting with design engineers that U.S. manufacturers have very little visibility into how the cost of products are actually distributed,” says Dewhurst. If they did, they would realize that most of the costs are fixed during design, and they would look there (to design) for cost reductions, not manufacturing. “Many companies now rushing to outsource manufacturing still do not understand that the design of the product determines the final cost,” Dewhurst adds.

“Outsourcing is not the first step in lowering product costs. Considering the competitive nature of the global economy, and the many hidden risks associated with outsourcing ventures, U.S. companies should scour product designs for efficiency before resorting to offshore production.”

One manufacturer that did just that, Milwaukee Electric Tool Corp., Brookfield, Wis., was highlighted in the study. Founded in 1924, the maker of the classic red-and-silver power tools used one of its drills as a test case. Milwaukee engineers made several cost-saving changes to the new design. They replaced gears that were originally machined from forged blanks with powder metal. They also replaced roller ball bearings with powder metal bushings. Part reduction and integration accounted for most of the other changes. The bottom line is that manufacturing the redesigned drill in the U.S. costs less than what it would cost to move production of the original design to China; and the new drill works better to boot.

Another case study with equally impressive results involves an electromechanical subassembly for the consumer goods industry. I'm guessing it's an automotive or appliance application. Whatever it is, additional details can be found in the report, which I suggest you download immediately and distribute to everyone you know.

The truth is now out. The people responsible for decimating the U.S. manufacturing industry may not be as bright as their lofty titles imply. And the fact that they don't seem to value engineering makes me wonder which jobs they will farm out next? It's time to speak up. Every manufacturing job that leaves the U.S. takes with it a piece of the future, especially ours.

The complete text of the study, “Improved Product Design Practices Would Make U.S. Manufacturing More Cost Effective: A Case to Consider Before Outsourcing to China,” is available at or by calling Boothroyd Dewhurst at (401) 783-5840.

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