Cheap Labor

The company I work for used to buy a casting part from China. Cost was $1.23 + $2.50 frt to get it to the port at Seattle. Based on 2000 part orders. But to get it to our company cost another $3.81 frt from Seattle (by way of Chicago beings its the closest point to unload containers).More for frt from Seattle to here than the cost of part and frt from China. But as of now we found a company down in Alabama to produce it for us at $7.05 delievered ($6.40 for part + $.65 frt) (base on miminum of 5000pcs orders). So with that being said labor $$$"s are very high for the same part built in the US, based on the part we get. Granted we are saving in a years time based on 13000 peices about $6400 by having them made in the USA.

So $6,400 is what you can show as a "hard dollar amount" savings.  What if any time do you save not having to deal with the international build, shipping, customs, etc time lag and potential associated down time or product shipment delays?  Having product partially finished sitting and waiting for parts I would think is astronomically expensive.  You've got your material and part of your labor cost sitting there earning you nothing on a partially finished product.  Plus, you've potentially got tear down and re-tool time of the workspace potentially injecting more substantially more labor cost into the final product.  If a product is delayed you've got unhappy customers, some of whom will cancel or change their order, and you may have some very expensive expidited shipping costs added in that just chew up margins.

That $6,400 cost savings you mentioned up front is easy to see.  The cost of "time" becomes a bit more abstract and more difficult to quantify.

How can a guy compare tax rates and benefits between a manufacturer based in the US vs. China.

I work for a company that both buys and sells to China.
Once you have the pipeline established on purchased/sold goods, foriegn is just as easy as domestic.  shipping delays are present both foriegn and domestic.  Build schedules accomodate delivery times ( short or long ).  There are " brokers " that assist in making this easy and cost effective for both parties.
As for the labor rate, I don't wish to ride my electric scooter to work in the blizzard or huddle over the coal stove to keep warm, or find out that, yes, every single part of a duck has nutritional value........did you know that some types of fungus has rubber band texture?  I don't ask what I'm eating anymore on business trips.

It all depends on the companies inventory and quality policies. If they are into Lean, they will want smaller, more frequent shipments which drive up costs. If they have a huge warehouse here and only want one shipment a year, it sometimes makes sense. Until they run into a quality problem and need replacement inventory. Communications can be a problem. US foundries lost a lot of business overseas over the last several years. I think some are seeing it come back, but not enough. A lot of it depends on the engineers/sourcing reps responsible for reducing costs and if they see the impact beyond the piece part and freight costs. But what do I know, I am a clown, but not a member of a club.

Lean manufacturing combined with proprietary parts sucks! Some of the OEM's I deal with started sourcing castings in China. All it did was force me to inventory the parts or refit the equipment. If you come up short in between production runs your screwed. Then there's still the quality issues. Cheaper isn't always better. It may look good on paper, but you'll end up spending more in the long run.

The outfit I work for raised spuds for Frito in China one season. If I remember correctly, at the time the average wage in that area was around $30 a week. That's city wages not farm wages. The farm labor was contracted through Frito. They had families that lived at the farm (compound) year around. I have no idea what their wages were. I did see pictures of the neighbors plowing their field with a log pulled by a mule. There was also pictures of an irrigation well being drilled with a bamboo tripod and an electric motor. Our guy said the motor, drill pipe and tripod came in behind a mule one day and the next they pulled the generator There isn't any other big operations over there, but almost everyone who owned land raised potatoes even if it was only an acre or two. In the end it proved to be too much of a pain to get the needed parts and support to make it worth it for us.

As Teacher stated, once you have the pipeline established everything seems to be ok. But we did have 3 month lead time on the parts, with the US connection it it 3 weeks. But there is a trade off, with the China connection we only need to order 2000 parts at a time where as the US connection we have to take 5000. This runs deeper into the pockets and at inventory time we do not want that many parts on hand as these are considered finished parts. If you are running lean manufacturing, this really loads up the supermarket on one item.

HUNT69 Said:
As Teacher stated, once you have the pipeline established everything seems to be ok. But we did have 3 month lead time on the parts, with the US connection it it 3 weeks. But there is a trade off, with the China connection we only need to order 2000 parts at a time where as the US connection we have to take 5000. This runs deeper into the pockets and at inventory time we do not want that many parts on hand as these are considered finished parts. If you are running lean manufacturing, this really loads up the supermarket on one item.

OK until you run into a quality problem. Then you have the product on the slow boats on their way here (whatever was shipped over the 3 months). If it is a critical component, they have to remake new good parts and then air them to you at big $$$$. Nothing like spending thousands on shipping parts that cost a fraction of the freight bill.