Author: Charlie Barnhart Company: Technology Forecasters Inc Date Published: 1/31/2007
Pan Pacific Symposium
Abstract: ABSTRACT OEM managers making manufacturing-outsourcing decisions already know that their company’s total cost of ownership comprises both one-time and recurring costs over the life of each outsourcing project. But managers too often miss a number of critical factors, which frequently deliver a blow to original cost assumptions. Not the least of these factors is that One-time costs are in fact highly recurring, because they comprise not only tooling and set-up charges but also selection and qualification of component-and-materials suppliers, intervention costs, and corporate-based initiatives involving the supply solution. Additionally both one-time and recurring costs are significantly impacted by not only the scale of a project (by virtue of economies-of-scale) but also the approach and complexity of the outsourcing solution selected as they directly impact what an OEM will ultimately spend internally in support of their sourcing initiative.
The Approach variable includes the contract manufacturer’s and ODM’s geographic distance from the OEM, whether the work-in-progress traverses multiple geographic regions, the product’s start-up procedures, where new product introduction (NPI) is conducted, if “copy exact” is employed, how frequently and how engineering-change-order activities are managed, the warranty process utilized, and more.
The Complexity variable includes the ratio of lot size to product mix; the program’s planned versus actual lead-times and flexibility requirements, and more. Therefore making assumptions on TCO isn't good enough, as in today's highly competitive global marketplace a company’s true cost of outsourcing has become a critical factor to their overall business success.
Keywords: outsourcing, total cost of ownership, monetizing risk.