The Offshoring Decision:Total Cost Dimensions to Consider When Evaluating Total Cost from Offshoring Performance Dimension Activity Impacting Performance Impact of Offshoring Order communication Order placement More difficult communication Supply chain visibility Scheduling and expediting Poorer visibility It is important to Raw material costs Sourcing of raw material Could go either way quantify these factors depending on raw material sourcing carefully when making Unit cost Production,quality (production and Labor/fixed costs decrease; transportation) quality may suffer the offshoring decision Freight costs Transportation modes and quantity Higher freight costs The benefits:unit cost Taxes and tariffs Border crossing Could go either way Supply lead time Order communication,supplier Lead time increase results reduction from low production scheduling,production time, in poorer forecasts and customs,transportation,receiving higher inventories labor and fixed costs; On-time delivery/lead Production,quality,customs, Poorer on-time delivery time uncertainty transportation,receiving and increased uncertainty tax advantages resulting in higher inventory and lower ▣almost every other product availability Minimum order quantity factor getting worse Production,transportation Larger minimum quantities increase inventory Product returns Quality Increased returns likely Inventories Lead times,inventory in transit and Increase production Working capital Inventories and financial reconciliation Increase Hidden costs Order communication,invoicing Higher hidden costs errors,managing exchange rate risk Stock-outs Ordering,production,transportation Increase with poorer visibility 6-7+ - SEIEE AU406 6-7 The Offshoring Decision: Total Cost  It is important to quantify these factors carefully when making the offshoring decision  The benefits: unit cost reduction from low labor and fixed costs; tax advantages  almost every other factor getting worse