Quality is the most frequently cited reason for reshoring manufacturing to the United States. According to the Reshoring Initiative’s 2017 Data Report, quality cost ranked number one as the most frequently mentioned negative factor experienced offshore from 2010 through 2017. Company brand value of having a Made in USA product, a factor directly linked with perceived quality, ranked fourth in the positive domestic factors. Both measures are for reshoring by U.S. headquartered companies and foreign direct investment (FDI) to the U.S. by foreign companies. While quality cost remains one of the most common offshore problems, it is often overlooked in sourcing decisions. Companies too often accept lower product and service quality to save on cost. We will demonstrate that for an increasing percentage of imported products, companies can have domestic quality and availability without impacting profitability.
It is not easy to measure the actual cost of poor quality. Total cost of ownership (TCO) analysis is an essential tool when establishing a quantitative value on the quality of products from multiple suppliers. When using the Reshoring Initiative’s Total Cost of Ownership Estimator (TCOE), quality cost is represented by the quality/rework/warranty cost factor. Real-world companies using the TCO Estimator estimated their offshore direct quality cost as about 2.5% of purchase price, ranking quality the tenth highest of thirty TCO cost factors analyzed.