A decision modelling framework to analyse offshore outsourcing changes for US manufacturers

With companies spending trillions of dollars annually, accounting for the majority of revenues, it is easy to understand why companies are constantly seeking ways to cut costs in manufacturing and procurement. It is widely believed in the financial arena that increasing revenues by 30 per cent has about the same effect as cutting costs by 10 per cent. This paper will attempt to look at trends in the marketplace of some of the major components of variable cost and their effects on total product cost and revenues by outsourcing of consumer products manufacturing in China from a strategic manufacturing perspective. Four major cost component trends that the study will specifically focus on will be the following: the rate of rising wages in the United States and in China; material cost (specifically steel); the costs of shipping goods from China to the United States; and the risk of profit loss due to recalls, quality issues, loss or damage of goods and/or potential loss of customers. The study outlines a way to examine the chosen variable cost trends to project cost savings, resulting in enhanced revenues using a simple decision modelling framework to analyse outsourcing of manufacturing operations.