Making Better Offshoring and Onshoring Decisions

• Date: 01 September 2014
• Author: Reginald Tomas Lee
• DOI: http://doi.org/10.1002/jcaf.21986
• Published date: 01 September 2014

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© 2014 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.21986

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Reginald Tomas Lee

The author of this article says that U.S. manufac-

turing is making a comeback—and much of this is

due to the onshoring strategies many companies

are executing. Simply, many companies are find-

ing it more financially effective to produce in the

United States than elsewhere. But after all com-

panies went through to eliminate U.S. production,

sending it overseas—only to bring it back—is it

really worth it to make things here again? How

can a new cutting-edge analysis help companies

decide? © 2014 Wiley Periodicals, Inc.

M aking Better Offshoring and Onshoring

Decisions

U.S. manufactur-

ing is making a

comeback, and

much of this is due to

the onshoring strate-

gies many companies

are executing. The idea,

simply, is that compa-

nies are finding it more

financially beneficial to

produce in the United

States than elsewhere.

There are many factors

that may influence this,

such as currency rates

and consumer markets. Even the

type of work is a factor. Many

of the jobs being onshored are,

in many cases, higher value-add-

ing activities than we lost.

Even so, the question must

be asked, “With all that was

involved with eliminating pro-

duction in the United States,

sending it overseas for a few

years—only to bring it back—is

it worth it?”

Because there is a cost or

cash flow decision involved,

I’m regularly asked to review

proposals for the outsourcing

or insourcing of production or

services. There are two recur-

ring trends that I see in these

analyses that may influence

the answer to the preceding

question. First, the scale of the

analysis is typically too limited.

Second, the financial analysis

can include inappropriate or

even incorrect assumptions,

which limits its effectiveness as

an analysis tool.

LIMITED ANALYSIS SCOPE

Many of the analyses that

I review do not consider the

overall implication of offshor-

ing or onshoring to the com-

pany as a whole. Many times,

the emphasis is placed directly

on comparing what it takes for

the client company

to manufacture the

product or provide

the service versus

having someone else

do what amounts

to the same thing.

These analyses usu-

ally consider logis-

tics and even the tax

implications of the

move.

This is not

enough, however.

Many areas of the

organization may be affected by

the decision, either positively

or negatively, as a result of the

transaction, and these areas

are often outside the scope of

the analysis. The result of this

is that there is an incomplete

understanding of the total

impact of the transaction.

Sometimes, for instance, getting

rid of a product may cause the

company to have excess capac-

ity in areas that are not directly

involved in creating the product

or service, but they are affected

by its existence. Examples may

include areas such as manufac-

turing overhead, and product

development, that still have their