Should I Stay or Should I Go?
Total Cost of Ownership is an all-encompassing estimate that helps business people determine direct, indirect and consequential costs of one decision versus another.
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I can’t get that hit rock song, “Should I Stay or Should I Go” by The Clash out of my head.
Darling, you gotta let me know
Should I stay or should I go?
If you say that you are mine
I’ll be here ‘till the end of time
But you gotta let me know
Should I stay or should I go?
I’ve been talking to companies that are now making decisions about keeping their manufacturing and supply base in China or bringing manufacturing back to the US. They are asking the question, “Should I stay or should I go?” and that triggers the song playing in my brain…over and over and over.
In the 1990s and 2000s, companies went to China out of fear of being left behind, not necessarily because they had made an informed decision based on data about the Total Cost of Ownership (TCO). Now it seems they are coming back for fear of being left behind again.
Total Cost of Ownership is an all-encompassing estimate that helps business people determine direct, indirect and consequential costs of one decision versus another. The idea was developed in the 1980s and applied to the costs of implementing software over its entire lifecycle. But when using TCO in a manufacturing or sourcing decision to stay in China versus moving back to the US, there are many more components to monetize and compare.
For example, you may find additional factors that must be considered beyond simple labor costs, import and logistics costs, such as:
- Marketing appeal of “Made in USA” labeling
- Mood of America shifting toward a preference for domestic products
- Supply base considerations – if you move production, will the suppliers move, too?
- Opportunity for automation of a production line that will save manufacturing costs and improve quality in the long run
- Shortened production cycles
- Opportunity for a new production location including “clean and green” manufacturing buildings
- Good PR that comes along with opening a factory and putting people back to work
- Tax credits and many other incentives being offered by local, state and federal governments
- Eliminated cost of late-night phone calls or quarterly trips to China
- Reduced cost of fixing quality issues remotely
- Lower Risk of IP theft
There are also costs associated with leaving China such as buying out employment contracts, obtaining permits to shut down operations, and the tools and dies left behind.
There is a lot to consider and trying to monetize all of the hard and soft benefits can be very challenging. Nonetheless, it is important to consider all costs for a true comparison before you decide, “Should I Stay of Should I Go?’
About the AuthorRosemary Coates Ms. Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of: 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith - How to Avoid and Defend Supply Chain Disputes. Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters. She is passionate about Reshoring.
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