Better product designs make U.S. manufacturers more competitive: a new study by Nicholas Dewhurst and David Meeker finds that manufacturers can shave costs from the production process by redesigning products to reduce part counts and labor.

It may not be necessary to move jobs offshore in order for a company to remain profitable, say Nicholas Dewhurst and David Meeker, authors of "Improved Product Design Practices Would Make I I.S. Manufacturing More Cost Effective A Case to Consider Before Outsourcing to China."

Dewhurst, the executive vice president of Boothroyd Dewhurst Inc., and Meeker, a consultant with Neoteric Product, Development,, propose that manufacturers can cut costs by redesigning products to reduce part count and cost. This savings would help level the advantage Asian countries have in terms of lower cost labor.

U.S. manufacturers, however, must act soon in order to keep business borne, Meeker says. The residential furniture industry, for example, has al ready lost thousands of jobs--and billions of dollars--to offshore manufacturing, particularly in the wood bedroom furniture sector.

Last year, China shipped $1.16 billion in wooden bedroom furniture to the United States. It has since doubled its U.S. market share to 48 percent, since 2(100.

To find out what additional steps woodworkers should take 1.o remain competitive domestically--and issues to be considered before moving to offshore manufacturing--Wood & Wood Products queried Meeker for his insight into the topic. For a copy of the study, visit www.dfma.com

Q Your study suggests that US. manufacturers can stem the tide of offshore imports simply by redesigning their products to streamline the production process. However, in the furniture industry for example, much of the business going offshore is labor-intensive in nature, i.e., a hand-carved wood bedroom suite. How does this "mesh" with your theory?

A What our study in a nutshell says is threefold:1) Understand your total cost--all facets--in as much detail as possible; 2) Applying a Design for Manufacture and Assembly approach to redesigning your product may yield significant savings so you don't need to go overseas; and 3) If you do decide to go overseas, make sure you understand al! the costs associated with doing that.

The study recognizes there are products that have a large portion of their cost as labor and that these products may be good candidates for offshore manufacture. However, what we strongly suggest is that a complete look at the product cost and all the cost of offshore manufacturing be taken into consideration before a decision is made.

Q Please explain what is meant by "Design for Manufacture and Assembly?" Can you give an example of how a wood component or a piece of furniture can be redesigned to reduce part count and cost?

A DFMA is a systematic procedure that allows companies to understand and manage product costs from the earliest stages of the product's development.

In an example from the aerospace market, when Airbus first entered the commercial market Boeing did analysis work to understand how Airbus was building its product. In the case of a passenger door, Airbus hogged the bulk of the assembly from a single billet of aluminum using a high-speed machining center, as opposed to building up the door frame from lots of parts and subassemblies.

Consolidation of parts is one way to lower cost, along with using new processes and equipment to lower labor content. Many in the wood furniture industry are also turning to CNC machines to cut complex parts that in the past would have been made from several smaller pieces or by hand.

Q What's to prevent offshore companies from redesigning products as well, making their products even less expensive than those manufactured domestically? As we point out at the end of the paper, nothing prevents you from sending the DFMA redesigned products overseas to be manufactured and nothing prevents offshore companies from doing the same.

Q Low labor cost is often cited as the number one "reason for offshore outsourcing. How much of an impact does labor truly have on the cost of a product?

A The number cited in the study shows that labor, on average, is about 4 percent. The chart (below) has been created from data gathered by Boothroyd Dewhurst Inc. over the last few years. The Labor Cost chart clearly shows that labor is generally the least significant contributor to cost. However, this could vary from product type to product type.

You should keep in mind that at one time, labor in Japan was considered cheap, and most recently, labor in Mexico was cheap. Labor in China will not always be so.

Q What are some of the advantages a U.S. woodworker can realize by keeping manufacturing on U.S. soil?

A Our study points out that some products are just not a good fit for offshore manufacturing:

* Products manufactured in the United States or other high-wage countries using a highly-automated process may not show significant cost savings when produced overseas.

* Product weight and size can affect offshore manufacturing because of shipping cost.

* Products that require scheduling flexibility are poor candidates.

* With newly developed products that undergo many engineering change orders and revisions, quality issues may arise.

* Inventory on waterways may need to be reworked when it arrives.

* By offshoring, firms with products protected by patents risk losing proprietary information.

* Firms that utilize expensive production equipment will find depreciation is the same worldwide.

The study also highlights other issues and disadvantages that you may want to investigate.

Q Are their other issues/processes manufacturers should be looking at in order to improve their bottom line?

A Clearly manufacturers should watch for products that are being dumped on our shores unfairly, understand all their costs as completely as possible, and continue to look for new processes and equipment that can save assembly labor and process time.

Hourly Compensation
Costs for Production
Workers in
Manufacturing
Based on U.S. dollars
2003figures

United States   $21.97
Japan           $20.09
Singapore        $7.41
Taiwan           $5.84
Hong Kong        $5.54

Source: U.S. Department of labor,
Bureau of Statistics, November 2004

Low labor rate is often cited as the top reason for moving manufacturing offshore. In the 1970s and early '80s, the destination was Japan. The shift has since moved to Asia, primarily China, where labor rates vary widely between $0.55 and $5.00 of 54.00 per hour.

Wood Furniture Parts:
Top 5 Importers
January-September 2004
(Values in $1,000)

1. China     $165,172

2. Canada    $149,846

3. Mexico     $62,355

4. Malaysia   $28,834

5. Italy      $25,311

Source: U,5. Department of Commerce,
International Trade Administration

China accounts for almost one-third of the $558,256,000 worth of U.S. wood furniture components imported in the first nine months of the year.

Labor is the Least
Significant Factor to Cost

Part Costs   72%
Labor         4%
Overhead     24%

Source: Boothroyd Dewhurst Inc.

Note: Table made from pie chart.

Issues and Costs to Be Considered Before Manufacturing Offshore

* Legal issues

* Theft/piracy of design

* Cost of transition

* Loss of manufacturing control and flexibility

* Cost of additional inventory needed to carry due to shipping

* Cost of additional paperwork

* Cost of managing offshore

* Cultural/communication difficulties

* Increasing labor costs once a vendor relationship is established

* Cost of layoffs and Severance 

Source: Improved Product Design Practices Would Make U.S. Manufacturing More Cost Effective

According to the study by Dewhurst and Meeker, despite lower labor costs in many Asian countries, it may not be cost-effective to send a product design overseas for manufacture. "Hidden costs," such as such as loss of manufacturing control, offshore management costs and added time needed for shipping and delivery all need to be considered.