Time to
COME
HOME?
To offshore, nearshore, or “reshore”? A total cost of ownership (TCO) analysis
can answer that question. For some companies, TCO analyses are suggesting
that manufacturing close to the point of consumption is the best choice.
In just the last couple of years, supply chains around the world have been shaken up by a series of unexpected events and
developments. Volcanoes in Europe and South
America have disrupted airfreight routes and
schedules. The Japanese earthquake, tsunami,
and nuclear power disaster confirmed the
fragility of extended supply chains. Political
instability continues to wrack the Middle East.
Wages and currencies have been rising in China
and other relatively low-labor-cost countries
(LLCCs). Transportation costs have soared
along with crude oil prices.
Those are just a few of the shocks and disrup-
tions that are leading some companies to rethink
their sourcing models. The question for many is
whether to offshore (source from distant over-
seas suppliers), nearshore (source from suppliers
located closer to end markets), or “reshore”
(source within a consuming market that has lost
manufacturing to lower-cost countries).
WHAT IS TCO?
Many companies still make sourcing decisions
based only on price. Others decide based on the
financial concept “cost of goods sold” (CoGS),
which might also include freight, duty, and
packaging for large, discrete products. Landed
cost generally is similar to the cost of goods sold
