Low-Cost Countries Versus Domestic Producers: The case for domestic producers in the motorsports industry
By factorypipe | Jul 21, 2020
Although the total-cost-of-ownership (TCO) approach is well known and widely accepted, the original equipment manufacturers’ (OEM’s) drive to reduce bill-of-material (BOM) cost reasonably leads them to investigate sources in low-cost countries (LCCs). The arguments over build it here or build it there are well vetted in books such as The Machine That Changed the World by James P. Womack, et. al., and The Toyota Way by Jeffrey Liker, as well as countless other publications. The allure of low-cost labor can outweigh the cost of an extended supply chain with its attendant long lead times (time to market), increased inventory, communication challenges, and cultural differences. The Toyota Way touts the build-them-where-you-sell-them philosophy, driven by both political realities where protectionist sentiment causes market risks and from the desire to avoid currency fluctuation impacts.
But low-cost labor can be, in and of itself, its own worst enemy. Low-cost labor tweaks the cost-model-of-automation justification, where labor savings are weighed against the capital expenditure (CapEx) of automating processes. This can lead to more manual processes: manual welding as opposed to robotic welding, manual finish sanding over robotic, tube bending in multiple manual setups as opposed to a single-load, CNC-multi-stack tube bender. These manual processes are operator-dependent and as such, more prone to part-to-part variability than automated processes.
However, while manual processes such as welding cannot match the exact repeatability and accuracy of automated processes, manual processes are more adaptable. Again, that’s a good news/bad news situation. The good news is that these manual processes can tolerate upstream process variability; the bad news is that these manual processes can tolerate upstream process variability. That is to say, tolerance for upstream variability often precludes catching and eradicating upstream variability. But alas, process variability is always caught by someone somewhere, whether it’s at end-of-line inspection, by consumers, or worst of all, by regulators.
In a world where part-per-million (PPM) defects are expected to be in the single-digit range, it is hard to imagine a successful manual approach without multiple out-of-station and end-of-line, non-value-added inspections.
In short, some decisions are difficult to fully analyze using a spreadsheet cost/benefit analysis. Some decisions require intuition and a full understanding of the process. The build-it-here-or-build-it-there decision is one of those.