The Reshoring Initiative founded in 2010 - to bring manufacturing back to the USA - has had a great boost with Trump becoming President. Although, the movement was gaining momentum way before Trump as businesses increasingly looked at the total cost of their supplies and not just the price. The Reshoring Initiative is focused on helping companies shift their collective thinking from “offshoring is cheaper” to “local reduces the total cost of ownership.” They do this by assisting manufacturers and suppliers in making sourcing decisions by providing valuable tools and resources.
Reshoring Initiative Total Cost of Ownership Estimator®
Reshoring Initiative have developed a free online calculator for determining a company’s profit and loss impact of reshoring vs. offshoring to stop companies making sourcing decisions based solely on price, often resulting, RII claim, in a 20-30% miscalculation of actual offshoring costs.
Onces companies have to input their data into the calculator, they receive a total cost of ownership analysis covering:
- Calculations of 30 cost factors for each source
- An accumulation of all costs into cost categories
- The TCO for each source
- Line charts showing each source’s current price and TCO and a 5-year TCO forecast
- Line charts showing your cumulative cost by category for each source
RII claim that the main benefits of the Total Cost of Ownership Estimator are:
- Customized: Calculations are based on your unique data.
- Flexible: Users may skip values that are not essential
- Enables direct comparisons by providing a total cost for each source
- Complete: Incorporates 30 cost and risk factors
- Strategic: Provides the current TCO value, as well as a 5-year forecast based on the user’s forecast of wage and currency changes
- User-friendly: Automatic calculation of freight rates for 17 countries and explanations and references for Input factors.
- Transparent: Cost calculation formulas are shown on the Results page
- Credible: Recognized by the U.S. Commerce Dept.
Users of the RII’s TCO model say that it is vital in guiding companies to assemble all the hard and soft costs of the onshoring v. Offshoring together to be able to argue for building in the USA.
Corporate treasury outsourcing
These are not new thoughts about onshoring v. Offshoring, what is new is a model that brings ALL the data and arguments together. Corporate treasury outsourcing desparately needs such a TCO model to evaluate, particularly in labour arbitrage of repetitive manual processes which includes cutting all all processes into small pieces, so that anyone can be slotted in to perform the task as it has been deskilled, and can be carried out by low skill level and cheaper FTE. Such a model should include all the dangers of outsourcing such as:
- impact of high turnover of staff and frequently changing locations to cut costs even further
- cutting the process and associated knowledge into many small pieces creates a problem when something goes wrong. Overall knowledge and understanding is gone and a small issue quickly requires 15-20 people to address or solve
- cost savings which are not obtained from improved, scalable process improvements but purely based dependent on cost differentials
- lack of knowledge/affinity with the companies processes which will show in how issues are handled/assessed
- The cost impact of there no longer being a junior pool to select from and in the future plus the fact that the detail knowledge of how the company works disappears.
When considering corporate treasury outsourcing programmes we list some of the critical questions to ask and how to measure and manage it, here.
CTMfile take: The good and the bad and the ugly of corporate treasury outsourcing programmes need to be measured comprehensively and incorporated into any TCO model of the impact of outsourcing programmes.
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