The High Costs of Going Cheap in Manufacturing and Supply Chain Management

 

Would you believe you could actually end up paying more money for things by being cheap?  As a proud frugal shopper myself, I can hardly believe I’m writing these words, yet I know them to be true. How many of us have experienced this in the world of home improvement? To save a few bucks, we decide to go with the cheapest contractor on a project, only to have to hire another, more expensive contractor to fix the work from the first contractor.  As a result, we end up paying more money and the project takes more time than had we just hired the more expensive, more qualified contractor to begin with. Believe it or not, this happens all the time in the manufacturing and supply chain arena.  

In today’s expansive and global economy, the options for finding resources and talent in the world of manufacturing and supply chain can appear endless. Companies more and more are presented with the opportunity to cut costs by outsourcing work to either to Asia or Mexico, as well as opting to hire less-experienced talent in the US. Unfortunately, neither are necessarily good options as both are fraught with challenges.

When it comes to outsourcing work to either Asia or Mexico, companies may not realize they’re taking a significant risk when it comes to competency and skillset.  Companies might think they’re hiring resources with similar knowledge, backgrounds, and skills as what they would find in the US, but in fact, they’re not. This can be due to the fact the individuals are trained and educated differently in other countries compared to the US or that companies overseas inflate their knowledge and expertise. Either way, it creates a difficult situation for US businesses ,as very often they find themselves disappointed with the quality and durability of resulting products developed abroad by such outsourcing companies.

Now, don’t get me wrong, there’s certainly companies such as Apple and other tech giants who have had success outsourcing their manufacturing, such as to the famous Foxconn facility in China. Yet, even working with Foxconn has included its fair share of challenges from product quality to poor labor conditions that Apple may not have been able to overcome had they not been a tech behemoth. For other companies, however, similar situations to Foxconn could be devastating whether for a new product launch or for the entire business. It’s the bigger picture component that often gets missed with outsourcing decisions – the downside possibility of the project going belly up. This unfortunate outcome is one that ends up costing companies significant amounts of money and time – much of which is wasted on supply chain and manufacturing that can’t even be salvaged due to the poor quality and thought put into it.

There are parallels between outsourcing overseas and US companies hiring cheaper, inexperienced US-based talent in house for supply chain and manufacturing work. Similar to offshoring, companies go down this path as a more cost-effective approach yet often fail to see the money they’ll have to spend in training and iterations. Individuals who lack experience will need appropriate training – this is time the company is paying for these individuals to learn and it’s also time that’s adding to the overall length of the project they’re working on. Additionally, inexperience employees are more prone to making mistakes – leading to multiple iterations during projects. The iterations are costly both from a time and a materials standpoint – additional unforeseen costs of hiring inexperienced resources. Certainly, hiring inexperienced resources in-house can work out for companies, I won’t deny that. The question companies have to answer is it worth the extra time, money, and hassle versus hiring an experienced outside firm?

I’ll end this blog by bringing things full-circle – there are high costs to being cheap and these high costs can often lead consumers, as well as businesses to pay more money and lose more time than had they went with a better, albeit more expensive, alternative. It’s sad, but all too often it’s the state of affairs that plays out in the supply chain and manufacturing world. Companies view outsourcing or hiring inexperienced talent as a cost saving measure that contributes to the bottom line, only to find out that it does contribute, but not in the way they had hoped. As mentioned above, this isn’t a black and white situation, as certainly companies have had success with outsourcing and hiring inexperienced talent for supply chain and manufacturing projects but I would argue this is more the exception, than the rule. Something to think about for your company’s next manufacturing or supply chain project…

Chris

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