Operations Payoff

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Considerations for Going Off-shore

When companies consider moving production off-shore, there are many factors to take into account. Here are just a few:

  1. Core competency. If what you’re doing is a core competency in your country, don’t take it offshore. Boeing made the mistake of off-shoring 80% of their 787 Dreamliner to factories in the Far East. While they were investigating the move, one of their engineers spoke out against it, citing inadequate vetting of suppliers and no plan to protect Boeing’s core competencies. A senior manager disagreed, and it has cost Boeing $12-18 billion to recover from their decision to move production of just the tail section offshore.
  2. Access to technology. Right now you can’t buy a pearlescent black Toyota because the factory that makes that particular paint is within the area of the Fukushima nuclear plant in Japan. The microchip industry has also lost access to the technology it requires – there are two plants in the entire world that make the coating for silicon wafers, both of which were affected by the tsunami in Japan.
  3. Clock speed. Clock speed is the speed at which a product becomes obsolete, so laptop computers, for example, have a very high clock speed. Fire hydrants have a low clock speed. If your product goes obsolete quickly, you’ll need engineers and supply chain professionals at your suppliers’ location to continuously check products coming off the line. Dell, who has been successful off-shoring, has a significant supply chain management team on the ground in Taiwan to keep track of things. It takes significant resources to support that effort.
  4. Variability of demand. Older, more established products are better candidates for off-shoring because you can more accurately predict demand. Making the effort to move off-shore for a new product may be risky if the demand fluctuates or drops within two years.
© Rick Pay, 2011 – All rights reserved

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