Being a leader in manufacturing means navigating the complex global field of competition, successfully managing challenges and leveraging opportunities.
Black Line Group’s Vice President and Manufacturing Practice Leader, John Madsen, is here to share his experienced insight on how to manage international competition.
The Hidden Costs of Low Prices
It is common to feel price pressure from foreign competition. And many times, customers will compare quotes without considering potential hidden costs related to working with a company overseas. “We would quote projects for long-standing customers only to learn (at times) that our competitor was pricing the project for less than our raw material price,” says Madsen. “This was a frustrating process and we lost work.” Madsen notes that a hidden cost that few will share is what it takes to set up a foreign supplier. Things to consider include:
- How many trips will it take to qualify the process?
- Will there be language barrier issues?
- Will the supplier use the same raw material that is specified or will they switch to a lower-cost material?
- Do you have a unique process you are teaching your supplier that can be duplicated?
- Are you retaining or sharing intellectual property that could jeopardize your company?
Shipping and Returns
“Often the U.S. buyer is required to pay for the shipment in advance of the product leaving the shipping port,” says Madsen. “If any product needs to be expedited, the cost to fly products to the U.S. is very expensive.” Customers dealing with a quality error will also incur the cost to return the product (if the supplier is reputable) or potentially scrap the shipment.
Consider an International Supply Base
“If an international supply chain is part of your company's strategic plan, make sure you have a contingency plan with a U.S. supplier making 60 percent of the EAU and foreign competition at 40 percent,” says Madsen. “As the supply chain proves its competence, the percentage amount can be shifted, allowing for a much quicker ramp-up of product if volume fluctuates and you can go to market with a blended price (60-40) knowing you have a plan to lower cost.” Other tips and considerations include:
- Know and hire a local consultant.
- Culture, social, legal and economic changes can have a dramatic effect on product shipments.
- How long will your products sit in port?
- Are there hidden fees to have your product shipped?
- Is the country you are planning on producing the product granted a "favored" status by the U.S.?
- What are the import duties and tariffs? Are you planning to single source?
“After you understand all of the hidden costs, doing business outside the U.S. may not necessarily be the best and lowest cost way to grow your business,” says Madsen. “Understand your risks and the full cost before jumping in.”