For OEMs, Total Cost of Offshoring Can Make Price Inconsequential
As many OEMs have found out in the past couple of decades, there are many pitfalls to going overseas to source parts and components. Where it was once feasible to chase low per part prices overseas, it's now unrealistic and inefficient. One plastic molding company, Reliance Engineering, knows all too well the perils that OEMs face in foreign countries, entanglements that include stolen intellectual property rights, poor quality, language and time zone barriers, and other impediments that make low part prices inconsequential.
Reliance Engineering (www.builtrite-reliance.com), located in Lancaster, Massachusetts, is a full service molding operation specializing in injection molding of thermoplastic parts, compression molding and transfer molding of thermoset parts, and injection molding of liquid silicone rubber (LSR). Inserts and over-molding are two of the company's molding specialties. Reliance offers its custom molding services to the medical, defense, high-reliability electronics, and other general industries. Applications for these industries include lead frames, security devices, silicone gaskets, electrical boxes, Army bayonet handles, and electrical connectors complete with molded inserts.
"Price is the number one thing I hear about all the time, and I've been doing selling for almost 30 years," says Andy Samoiloff, vice president at Reliance Engineering. "Thirty years ago, there was nothing mentioned about losing work overseas, but then it started 15 to 20 years ago. In the last three or four years, we've heard that China's price advantage, which used to be about ten to one, is now three or four to one. They all want to make more money and have more things over there, so it's getting closer to getting even with the western world. Once you add in the cost of air freight, or trying to return bad parts from China, it becomes more expensive. I don't think they have extra capabilities that we don't have, I don't think they have higher quality than we do, I don't think they have better design or engineering assistance than we do. But they have price savings."
Samoiloff, however, doesn't think that price savings on parts have been enough to offset all of the other hidden and opaque costs of doing business in China, Taiwan, or India. He says that the OEMs doing manufacturing overseas often find that other prices have increased. "They thought they were going to save 70 percent, but they only saved 15 percent, and one screw-up and they're not saving anything," Samoiloff explains. "And they like you to buy a boatload at a time, and if you want to make a revision change, now you've got to buy another boatload. It doesn't mean that it hasn't been successful, and a lot of places have done it very well. There's a lot of success stories, but it's not easy to make it work, and it's getting harder all the time."
The company's vice president believes that there are many good reasons to keep work in this country—especially areas in which overseas manufacturers are often lacking in expertise. "The biggest advantage we have over here is our quality, and also customer service, engineering assistance, all of the known dollar value things that you can do," states Samoiloff. "But they do show up in dollar value somewhere. The biggest overseas advantage is price. I've been dealing with buyers for a long time. A buyer needs to be concerned about quality, delivery, price, customer service, and standing behind your product."
Samoiloff comments that there are about ten different things that an OEM's buyers have to look at when going overseas or buying domestically. Price, he says, is fourth or fifth at the manufacturing companies where he has worked. "I've always worked at places where the quality, service, the product, and working with their engineers or designers to make a part better were the most important considerations," he says. "You have to make money when you do this stuff; it's not a hobby. If price is 90 percent of what you're looking for, you don't need me and the company I work for. You can go to China. They don't care what it looks like, or if it works, but they'll sell it to you cheap."
Excellent customer service and communication are also high on the list of areas that an OEM looks for to compete effectively on a global basis. "Once again, it's being able to communicate more directly, more quickly, and, ultimately, in person if you can," Samoiloff says. "We have a lot of customers in Maryland, Delaware, and Florida, where we do conference calls. I think it's just open communication. Halfway around the world, you have to deal with the language barrier and time barrier, and if you have to see somebody, it doesn't happen the next day. We strive to become partners with all of our customers. You need to know that they've got to make money, and that you've got to make money. We're both in it together."
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