Moving production back
April 30, 2012 1 Comment
The article in the April 21st edition of the Economist indicated the underlying costs for an Apple iPad. In studying this information, I continue to be amazed about a point that many miss: that materials costs are the largest element, accounting for 44% of the costs and 31% of the sales price. Direct labor and overhead are miniscule. Distribution and retail costs are 22%of the costs and 16% of the retail price.
The implications of this information are profound: companies in the U.S. are the most advanced in the concept of purchasing and supply management. We can find materials locally and produce locally and not pay the high costs of transportation, have less flexibility in the use of materials, and can have better inventory positioning.
I have made this case before. Is anyone listening? I can show from a total cost standpoint that U.S. manufacturers can be competitive, even more competitive, than Asian and Chinese suppliers. We need to change the mindset about this to improve control, cost management, and flexibility.