Is It Always Correct To Look For Lowest Unit Cost In Manufacture?
Many manufacturing companies when looking to reduce the unit cost of their components looked to move manufacture overseas to lower cost areas. This originally provided them with 4 key benefits
- Cheaper labour costs
- If they were exporting they were potentially closer to the market
- The improvement to productivity
- Other factors including lower trade barriers
Over Time Things Change
When considering the above historic benefits it is important to review the longer term situation
- Over time the labour cost savings have reduced as the overseas countries have become wealthier and salaries etc have increased savings from 14% to 11%. It is estimated by some that China wages will increase 12% between 20111 and 2030 and that wages will double in places like Poland and the Philippines within this time frame
- The additional benefits available from actually manufacturing the product on site / locally have become better known i.e. Innovation improvements and the ability to add value
- As with all business development there should be a focus on the “Total Cost Focus” not just piece cost. Otherwise there are far too many incidental costs that get missed – flying / quality). Some economists now suggest that the China cost advantage is now only 5%
The challenge of productivity, effectiveness and brand
The UK is currently in the productivity doldrums and appears to be going backwards. In the sphere of Innovation the UK is leading the way. There are numerous examples of how UK innovation has a significant impact from unique cutting tool technologies that can be utilised to save hours on cutting turbine components through to techniques that dramatically reduce the time to diagnose diabetes eye treatment.
In a global world the importance of brand is ever increasing The Made In Britain strap line carrying increased significance. From a marketing and business development perspective are we getting to the point where made in the UK is now more of an advantage than a 5% unit cost advantage.