Issue: May 2009


AlixPartners Introduces New Outsourcing Tool That Determines 'Best-Cost Countries'



Mexico Surpasses China and India in the Analysis; China's Total Costs Just 6% Below U.S.'s

by Steve Barclay

AlixPartners LLP, the global business advisory firm, today unveiled a unique new tool designed to give company managers and owners a much more precise understanding of which locale in the world is not just a low-cost country (LCC) for various manufactured components in today's fast-changing global economic environment, but the best-cost country, or "BCC." The AlixPartners 2009 Manufacturing-Outsourcing Cost
Index(SM) shows that within just the past six months there has been significant change in aggregate LCC manufacturing rankings, with Mexico now surpassing both China and India for the components studied, and that China's total, fully landed costs for the market basket of components studied are just 6% lower than the cost of manufacturing those same parts inside the United States. Perhaps more important, for individual manufactured items the AlixPartners tool shows that cost advantages can vary widely across LCCs, perhaps dispelling the notion that any one country can be the be-all and end-all LCC for everything.

Stephen Maurer, a managing director with AlixPartners and a leader of the firm's Lean Manufacturing practice, said, "This new index solves what is usually a mystery for virtually every manufacturing company
today: Given fast-moving changes in cost drivers like exchange rates, labor and shipping, which country is, really, the lowest-cost source for a given part or component?

"Outsourcing is a whole new ball game today," continued Maurer.
"Gone are the days when companies could see cost savings of 30% or more by making 'no-brainer' manufacturing-footprint and outsourcing decisions, to China in particular. Today, a whole new level of both quantitative and qualitative analysis and modeling is demanded, even though the data for such analysis and modeling are often dated or incomplete. With this new tool, however, AlixPartners is able to offer clients exactly that kind of in-depth understanding, so that particular products can be matched to exactly the right point of manufacture from a total-cost point of view."

The AlixPartners index analyzes a variety of manufactured components and simple assemblies, from small DC (direct-current) motor assemblies to complex machined aluminum die-castings, and compares the cost to build these items in China, India, Brazil and Mexico, versus the cost of doing so in the United States. It also tracks changes in seven key cost drivers (exchange rates, labor costs, transportation costs, raw materials costs, inventory costs, capital equipment/overhead costs and duties), by part and by country.

In an initial analysis, AlixPartners looked at the relative costs for its market basket of parts over the past three years. The index showed that China, once the lowest-cost supplier for this market basket, has now dropped to #3 in LCC rankings, behind India and the new #1, Mexico -- as China's total landed costs are now 94% of US costs for the same parts. The index also predicts that while China's cost position will probably improve in the latter half of this year, in part due to declining ocean freight costs as a result of moderating oil prices and the global recession, it probably will not improve enough for China to overtake Mexico and India this year.
Meantime, while the US has become more competitive in recent years, American manufacturing plants and suppliers still face a significant cost disadvantage in most cases versus the countries reviewed, the index finds.

"Our research shows that the cost structure of individual components strongly influences the savings potential of different LCC manufacturing options, and also that the key drivers can change quickly," said Maurer. "Manufacturing and supply-chain alternatives need to be rigorously analyzed to get to the right answer for today's reality, not yesterday's."

AlixPartners is a global business advisory firm offering comprehensive services to improve corporate performance, execute corporate turnarounds, and provide litigation consulting and forensic accounting services. The firm's specialty is urgent, high-impact situations when results really matter. It was the recipient of a record four awards from the Turnaround Management Association in 2008. The firm has more than 850 professionals in 13 offices across North America, Europe, and Asia, and is on the Web at www.alixpartners.com.

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