Quality is the most common offshore problem cited by companies who have reshored to the U.S. As reshoring in U.S. manufacturing continues to grow, total cost of ownership (TCO) analysis remains a key, underutilized tool that companies can use to make the best sourcing decisions. While quality drives consumer preference, satisfaction and real product value, and is commonly used as a ratings factor for suppliers, it is often overlooked as a hard measure in cost analysis.
Figuring out how to put a quantitative value on quality of products from different sources is part of the process when using TCO analysis. In the Reshoring Initiative’s Total Cost of Ownership Estimator, quality cost is directly estimated via the Quality/Rework/Warranty cost factor. Companies analyzing TCO estimated their Chinese direct quality cost as about 2.5% of purchase price, making quality the 10th highest of 30 TCO cost factors. In addition to the direct quality costs, quality impacts other cost factors. Figure 1 lists the other issues experienced by companies that mention quality as one of their reasons for reshoring.