There are many reasons why conditions here are more favorable than in the past. The economics of offshoring—only to return products—were always based on poor assumptions. For instance, it was assumed that assembly labor was the significant, intractable piece of the pie, one that could easily be transplanted to foreign shores at great savings. Actually, that category of labor averages closer to 4-5 percent of product cost. Finished materials consume roughly 70 percent and overhead another 24-25 percent.
Both product-level and corporate accounting were so off the mark. Today, Total Cost of Ownership (TCO) is re-emerging from management desk drawers to provide insight into the role that departments can play in creating or shedding costs. It’s a key tool for measuring the causality within interdependent operations—and generating solid shareholder profits.