Pan Pacific Symposium Conference Proceedings


Author: Charlie Barnhart
Company: Technology Forecasters Inc
Date Published: 1/31/2007   Conference: 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.

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