Outsourcing

There are some obvious reasons why companies manufacture their goods in China instead of here in the US these days. The primary reason is cost - it's so much cheaper to manufacture elsewhere that no CEO can ignore (or pass up) the savings to the top line. But what are the offset costs?

1. Workers in China are subject to conditions that we would not allow (by law) in the United States. Granted, having a sweatshop job making t-shirts for Walmart might be the difference between having a roof overhead and some sort of sustenance or not in some cases. On the other hand, visiting the facility where the shirt you're wearing right now might make you cry. (That's more of an indictment on the Chinese government, for the record. I only partially blame Walmart for taking advantage of a system already in place.)

2. Quality is usually a high priority for a domestic company. However, unless the company has an iron-clad quality process in place in China (or wherever the manufacturing occurs), it's up to the contract factory to monitor quality. At the end of the day, the Chinese manufacturer is trying to keep costs as low as possible, too, so it's no surprise that we find ingredients (lead, rat poison) that we would not condone or use in products here.

3. Pollution is difficult and expensive to offset in America. I worked for a t-shirt printing place that stockpiled barrels of used cleaning solvents because they were so toxic that only a rare few hazmat carriers would handle them. Therefore, it was way more expensive to carry them away than to stack them in the back of the warehouse (very dangerous). That was a tiny, ten-person shop. Now scale that up to a U.S. Steel or GM. Much easier to deal with that stuff in China where regulations are presumably less strict. But all that does is move the pollution across the ocean. It still affects the same ozone layer and water supply of the same planet.

I think about the company I work for currently. We had our own manufacturing facility five years ago which was state of the art and allowed us to build according to our specifications without relying on a vendor and their varied priorities. The costs of maintaining the manufacturing facility versus outsourcing made it a no-brainer (apparently) for the executives here. The company has seen some lean times in the past few years, so it's hard to blame the execs for making the decision to disband our manufacturing group.

My personal opinion is that while we are saving money and have a better looking balance sheet at the end of the year, we also sold out a bit of our reputation for quality. Also, while we don't have to shoulder the costs of "greening up" a manufacturing facility, we don't have any control of the environmental impact of the creation of our products.

My first time around at this company (with internal manufacturing), there were concerns about standing inventory. This time around, it seems like we're in a constant battle with vendors to get key components; sometimes holding off on releasing planned features as a result. That would never have happened in the past. We'd re-tool the line and create the part and release the entire feature package as planned. So which is better?

I'd argue that more control makes a company in our situation (shrinking/consolidating customer base, huge competitors) more agile and able to react to customer requests, requirements, and perceptions. Too bad I'm not on the board of directors...

Here's the article that sparked this post. And another that espouses similar sentiments.

It's been my belief all along that this massive shift to outsourced manufacturing and call centers is cyclical. Eventually, other countries will improve their working conditions (or be held to similarly strict environmental/quality standards) and the costs of operating overseas will match or outweigh doing it here.