I was having dinner with a client earlier this week and the topic of sourcing offshore came up. Thus, I decided to open this topic up for comment. Is offshore sourcing compatible with lean? I would maintain, that, with some exceptions, offshoring is an alternative to lean rather than part of the overall lean philosophy. Companies often faced with a need for cost reduction see lean as one choice and offshore production as the alternative. Offshore production often appears much better on paper than it is in reality. There are many hidden costs:
- Significantly late deliveries resulting in unsatisfied customers (and the need to add more safety stock)
- Lots of Money tied up in inventory resulting in reduced cash flow
- The need for off-site storage
- Quality issues causing costly rework and/or resulting in inability to get the final product to the end customer on time
These hidden costs are part of the waste that lean is aimed at eliminating. By implementing lean, we're trying to reduce the time and waste between order and shipment. Offshoring does the opposite. It very often looks great on paper but often results in lower "per unit cost" and higher overall costs leaving people (other than brokers who cut the deal between offshore manufacturers and American companies) scratching their heads.
I should say that if you can get closer to your customer by setting up manufacturing offshore (and then distributing the product to your customer from there), it might make a whole lot of sense. Toyota, for example, has "offshore" manufacturing set up in the United States precisely for this reason. The vast majority of offshoring, however, would not fall into this category.
Please share your thoughts and experiences.