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Global competition is a serious issue facing the wood industry today, and it's not going away. When it comes to outsourcing, manufacturers are faced with the decision of using either a domestic or foreign supplier. There are pros and cons to both approaches; it is just a matter of determining what works best for your company.
The decision isn't something you should jump right into. Rather, time and careful thought need to be dedicated to making choices that will best benefit and support your business and its goals.
Wood Digest asked representatives from within the industry that have been faced with this decision to weigh in on how they came to decide how they would handle outsourcing. Here is what they had to say.
What does a manufacturer need to take into consideration when deciding between outsourcing nationally vs. globally?
Tim Paradise, president, Quality Cabinet & Fixture Co.: The key to any company that is outsourcing that becomes part of the real property of a building is the effect that the sales consequence and the tax liability changes.
First, like in California or Nevada, if you are manufacturing your own products, the sales or use tax is charged for the material portion only, and no labor is taxed. But when you outsource any of these items that you historically may have done within your own shop, you must remember to apply tax onto the material and labor portion of the amount you are buying as it is all looked at as materials. Hence this tax, must be factored into the make or buy decision on the return one is making.
The second key factor in buying out is the overhead that it will take to manage the process of the buyout. Ask yourself: What services are really being saved vs. the profit that is made after overhead and taxes are applied? Is it really profitable after every process has been defined.
- Key costs are engineering the product
- The difference in using an offshore source is the second factor. The sophistication that is required to source out offshore is tenfold, as it requires the understanding of financing, letters of credit, the duties process and how the product is being quoted. Is the product assembled, what is going in every container, and what are the shipping durations?
The logistics to quality control at both points of production and delivery are key; the staging for the customer may require breakdown of materials for smaller shipments.
The bottom line is that outsourcing takes a dedicated culture, and more dedication for international business.
Tom Williams, Yuba River Moulding & Millwork, WMMPA president: I would say that in today's world a company needs to take into consideration what is in the best interest for his company both short term and long term and where can it have and maintain relationships that support that company.
At Yuba River, we outsource both nationally and globally different items for different reasons. Take computer support — I outsource regionally because of the size of my company, office supplies both locally and nationally; lumber both nationally/more regionally and globally, paint nationally, glue nationally; tying twine — probably made in China for the price.
Why did you decide to take the route you did for your outsourced parts?
Kim Dunn, Wellborn Cabinet: Wellborn Cabinet does not outsource anything globally. We have chosen not to outsource anything globally for a variety of reasons.
- There is no guarantee of delivery when the product is promised.
- Quality is certainly lower.
- There are no regulations regarding safety, quality, health, etc. on virtually any products, and imports are not audited to make sure they meet U.S. specifications.
- Outsourcing globally does not support the U.S. economy.