BPC was contacted by a client wanting to reduce the cost of acquiring raw materials for its products -- commercial cooling equipment for food service operations. Overseas competition had created price pressure in the company’s customer base, limiting the cost the company could pass on to customers. The client was evaluating outsourcing some of their components to a Chinese manufacturer, but was hesitant to make the move.
Overseas sourcing is very popular, but not always the right move. While the acquisition cost may be lower, risks and volatility may result in higher total costs. Even for small components, moving production overseas is a complex and expensive process. As emerging markets develop, wages will likely increase, taking with them the cost of production, and ultimately the cost of acquisition. Once this price, coupled with transportation and import costs balances the costs of sourcing domestically, onshoring should occur. But, at what additional cost?
We identified and evaluated multiple domestic and foreign co-manufacturing options for our client, building extensive financial models and conducting sensitivity analysis for different risk factors in each alternative. The overall best alternative was right in their own back yard, one state away. This co-manufacturer had been squeezed by offshore options, and was willing to work closely with our client to keep prices reasonable, and service and quality high.