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- 11/24/2011
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Document Sample
Total Cost of Ownership (TCO) Estimator
COST FACTOR U.S. CHINA CALCULATION FORMULA
CoGS (Cost of
Goods Sold)
FOB price $100.00 $70.00
Packaging $1.00 $1.40
unit price x packaging cost %
Duty $0.00 $2.80
duty % X price
Fees: % of price $0.00 $0.50
fee % x price
Fees: flat $0.00 $0.10
fee
Routine surface $0.00 $0.29
freight, excluding % routinely planned for surface freight x (unit weight
+ packaging weight) X surface freight rate
local
Routine air freight, $0.00 $0.00
(1- % routinely planned for surface freight) x (unit
excluding local weight + packaging weight) X air freight rate
Total CoGS $101.00 $75.09
Other Hard Costs
Carrying cost for $0.00 $0.47
intransit offshored
product if paid before
shipment
shipment time in years X interest rate X price
Carrying cost for $0.82 $2.57 unit price X ( avg. cycle inventory mos. + safety
stock mos. + buffer stock mos.) / 12 X carrying cost
inventory on-site %
Prototype cost $0.03 $0.12
prototype cost/annual units/ product life
1/12 x unit price x (Delivery time + avg. inventory) x
End-of-life inventory $2.41 $5.83
annual quantity/annual quantity/product life
Travel: start-up $0.02 $0.17
start-up cost / annual units / vendor life
Travel: $0.08 $1.57 annual # of trips X (per trip cost of travel time +
expense) / annual units
audit/maintain
Pick/place into local $0.00 $2.00 (1- % of inventory delivered JIT) x U.S. unit price x
inventory pick and place cost as % of U.S. unit price
Purchasing cost, $2.00 $3.00
excluding travel U.S. unit price x purchase cost %
Total Other Hard $5.37 $15.72
Costs
Cumulative Total $106.37 $90.81
Risk
Emergency air freight $0.00 $0.37 % air freighted x (unit weight + unit pkg. weight) x air
freight rate
Rework/quality $1.00 $2.10 unit price X quality cost %
Product liability non- $0.10 $0.42
recovery risk unit price X liability risk cost %
IP risk $0.10 $1.40 unit price x IP risk cost %
Opportunity cost: lost $0.50 $1.05
orders, slow
response, lost
customers
unit price x opportunity risk cost %
Economic stability of $0.10 $0.35
the supplier unit price x supplier economic instabiltiy risk
Political stability of $0.10 $0.35
the country
unit price x country political instability risk
Total Risk $1.90 $6.04
Cumulative Total $108.27 $96.85
Strategic
Impact on innovation $0.00 $0.35
of distance from mfg. unit price x innovation risk cost %
to R&D on product
Impact $0.00 $0.35
differentiation / mass
customization unit price x commoditization risk cost %
Total Strategic $0.00 $0.70
Cumulative Total $108.27 $97.55
Green
Production
Shipping
Local warehouse
Travel
Disposal of obsolete
inventory
Total Green $0.00 $0.00
GRAND TOTAL $108.27 $97.55
5 Year Forecast
Annual impact of 0.60% 4.50%
wage inflation and
currency appreciation
on $ price of product
0.3 x (wage inflation % + currency appreciation %)
PRESENT AND FORECAST U.S AND CHINA PRICE AND TCO
$140
COST, U.S. $
$120
$100
$80 C
o
m
U.S. TCO
$60 China TCO
$40 U.S. Price
$20 China Price
$0
1 2 3 Year 4 5 6
CUMULATIVE COST BY CATEGORY, YEAR 0
$120
CUMULATIVE COST, U.S. $
$100
$80
$60 U.S.
CUMULATIVE COST, U.S. $
$60 U.S.
China
$40
The TCO Estimator is provided by the Reshoring Initiative: www.reshorenow.org. Usage is encouraged.
Attribution is required.
$20
$0
COST CATEGORY
China
A B C D
1
2
3 USER INPUTS TABLE (Do not insert data into red cells. They are inactive.)
4 User Inputs U.S. Offshore Common
5 Country of origin China
6 Unit price, $ 100.00 $70.00
7 units/year, quantity 12,000
8 Product category Part
9 unit weight, lbs 2
10 Unit weight, packaging, lbs 0.10 0.2
11 Shipments/year 52 6
12 Shipment planned for surface freight, % 100% 100%
13 Product life, yrs 5
14 Supplier relationship life, years 5 5
15 Packaging, % of price 1% 2%
Lag from shipment date till actual payment date,
16 mos. 2 0
17 Shipment time, mos. 0.04 1
18 Annual carrying cost, in transit, % of price. 8%
19 Annual carrying cost, in warehouse, % of price 22%
% of shipments that can be delivered directly to
20 the floor JIT 100% 0%
Cost to place and pick in local warehouse, % of
21 U.S.price 2%
22 Delivery time from order to receipt, mos. 1 3
23 Quality, rework, warranty, % of price 1% 3%
Product air freighted to meet unforecast demand
or overcome quality/delivery issues, % of product
24 shipped 5%
Opportunity cost due to delivery and quality: lost
25 orders, slow response, lost customers, % of price 0.5% 1.5%
Unrecoverable product liability, expected % of
26 price 0.10% 0.6%
A B C D
27 IP risk, expected % of price 0.10% 2%
28 Supplier economic instability risk, % of price 0.10% 0.5%
Country political instability risk, % of price
29 0.10% 0.5%
30 Innovation loss, expected % of price 0% 0.50%
31 Trips to the suppier/yr 2 2
32 Cost/trip: travel, $ $100 $5,400
33 Cost/trip: time, including fringes, $ $400 $4,000
34 Pre-evaluation, regulatory compliance cost, 1X, $ $1,000 $10,000
35 Purchasing cost, other than travel, % of price 2% 3%
36 Prototype cost $2,000 $7,000
Impact on product differentiation/mass
37 customization, % of price 0 0.50%
38 Wage inflation, forecast, annual % 2% 10%
39 Currency appreciation, vs. $, forecast, annual % 5%
40
A B C D
41
42 FIXED FACTORS USED IN CHINA C
43 Factor Cost
Duty, % 4%
44
Shipping 0.71%
and
brokerage
45 Fees, %
Broker and $200
customs
fees, flat
46
Surface $268
freight,
$/U.S. ton
47
Air freight, $3.34
$/lb
48
Note: updated 4/30/11
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A B C D
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E
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insert data into red cells. They are inactive.)
4 Explanation: help for setting inputs
Use drop down menu in C5 to select a country. Country determines
5 freight rates.
6
7
Use drop down menu in D8 to select a Product Category. Product
8 Category determines duty rate.
9
Offshored will typically weigh more. Export packaging is more
complex and has to meet standards of the countries of destination
and origin. Must deal with longer and more varied transport
10 conditions.
11
12 The balance for offshored is assumed to be air freighted
13 Time until product is obsoleted or significantly revised.
14 Estimated time from first purchase until until last purchase.
Offshored will typically cost more. Export packaging is more complex
and has to meet standards of the countries of destination and origin.
15
16 Often Asian suppliers are paid prior to shipment.
17
Probably Cost of Capital. Only enter a value if the product is paid for
18 prior to shipment.
19 Most articles suggest 25%.
Typically, offshored shipments are larger and must be locally
20 warehoused.
Locally warehoused product must be placed and picked before
21 delivery to the factory floor.
Offshored is typically longer due to shipping time and less frequent
22 shipments
Warranty costs are probably recorded as a % of sales $, not of part
23 price
24
Opportunity cost despite emergency air freight. These costs are
25 perhaps kept as a % of sales $.
Extremely difficult to collect from Chinese vendors. See 8/1/07
Financial Times article by Patti Waldmeir: "Made in China, but sued
26 in America."
E
1. Trade in counterfeit and pirated goods equals $800B/yr, 5 - 7% of
world trade per IACC. 80% of counterfeiting comes from China. The
Economist March 4, 2010. 2. "The
U.S. government said Friday that the level of theft of copyrights and
patents in China "remains unacceptable" and kept Beijing on a
"priority watch list" for intellectual property protection. An annual
report by the U.S. Trade Representative's office (USTR) said that
China's enforcement regime "remains largely ineffective and non-
deterrent" and that U.S. copyright industries ranging from software
and movies to publishing to footwear "report severe losses due to
piracy in China.” " Source: IW Connecting Manufacturing Leaders
April 30, 2010.
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1. "co-location synergies…are more pronounced the more R&D
intensive the supply chain." "much of the knowledge underlying
emerging technologies is tacit in nature….co-location synergies are
critical." Rationales and Mechanisms for Revitalizing U.S.
Manufacturing R&D Strategies. Gregory Tassey, NIST
2. "Global sourcing mitigates disadvantages but does not create
advantages. Moreover, global sourcing is normally a second-best
solution compared to a cluster." Source:The Adam Smith
N
Address:Location, Clusters, and the “ ew”Microeconomics
of Competition Prof Michael Porter, HBS Jan 1998
http://www.econ.nyu.edu/dept/courses/niemira/980107.pdf
3. “exporting manufacturing has a negative impact on the country's
industrial commons, which represents the collective capability to
sustain innovation.” Professors Gary Pisano and Willy Shih Harvard
Business School http://hbswk.hbs.edu/item/6664.html
30
31 Audits, partnering, negotiations, etc
For example for 2 weeks in China: air $1,500, 13 nights hotel at
32 $200, 13 days meals and misc @ $100
For example for 2 weeks in China, weekly: $1,500 salary, $500
33 fringes.
Time and expense to visit several suppliers and then audit 1 or more
34 to select one.
35
Prototype typically sourced locally to facilitate partnering. Prototype
cost will be higher if production will be offshored, since U.S. shop will
36 charge more if it will not get production.
Long pipeline and loss of clustering effect makes fast reaction more
37 difficult, driving the company towards commoditization.
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E
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FIXED FACTORS USED IN CHINA CALCULATIONS
43 Comments
1. Machined parts: automotive 2.5%. Most others 4.7%. Avg. 4%
2. Stamping Dies for metal: 8%
44
MPF (Merchandise Processing Fee), HMF (Harbor Maintenance
Fee), insurance, brokerage and customs clearance
45
Broker and Customs fees
46
Shanghai Port to Rail Ramp Chicago. China typically sells FOB
seaport or airport
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China airport to O'Hare, incl fuel and security surcharges
48
pdated 4/30/11
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F G H I
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F G H I
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F G H I
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50 Air and Surface Freight Rate Table automaticallyaccessed via selection of a country of origin in cell C5
51 Air Freight to the U.S.
including
fuel and
52 Country of origin Rate, $/kg Rate, $/lb security
53 $3.34
54 Brazil 3.07 $1.39 $1.94
55 China 6.16 $2.79 $3.34
56 France 2.43 $1.10 $1.65
57 Germany 2.00 $0.91 $1.46
58 Hong Kong 6.16 $2.79 $3.34
59 India 3.14 $1.42 $1.97
60 Indonesia 4.69 $2.13 $2.68
61 Italy 2.20 $1.00 $1.55
62 Japan 5.12 $2.32 $2.87
63 Mexico 1.90 $0.86 $1.41
64 Netherlands 3.12 $1.42 $1.97
65 Pakistan 4.40 $2.00 $2.55
66 Portugal 2.00 $0.91 $1.46
67 South Korea 3.95 $1.79 $2.34
68 Spain 2.21 $1.00 $1.55
F G H I
69 Taiwan 6.32 $2.87 $3.42
70 UK 2.26 $1.03 $1.58
71
72
Duty Rate Table automatically accessed via selection of a Product
73 Category in cell D8
74 Product category Duty Rate
75 4%
76 Part 4%
77 Tool, e.g. mold or die 8%
J K
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ction of a country of origin in cell C5
51 Ocean Freight to the U.S.
$/U.S. ton at
16,000 kg =
17.92 U.S.
52 40' container tons/40' container
53 $267.86
54 $4,200 $234.38
55 $4,800 $267.86
56 $3,400 $189.73
57 $3,000 $167.41
58 $4,800 $267.86
59 $8,700 $485.49
60 $4,900 $273.44
61 $4,000 $223.21
62 $5,000 $279.02
63 $3,700 $206.47
64 $2,500 $139.51
65 $9,500 $530.13
66 $4,000 $223.21
67 $4,900 $273.44
68 $4,000 $223.21
J K
69 $4,800 $267.86
70 $3,500 $195.31
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PRESENT AND FORECAST U.S. AND CHINA TCO AND PRICE: PARTS
Year U.S. TCO China TCO U.S. Price China Price
0 $108 $98 $100 $70
1 $109 $102
2 $110 $107
3 $110 $111
4 $111 $116
5 $112 $122
CUMULATIVE COST BY CATEGORY, YEAR 0:
PARTS
TCO Cost
Category U.S. China
Price $100 $70
CoGS $101 $75
Other Hard $106 $91
Risk $108 $97
Strategic $108 $98
Green $108 $98
Air Freight to the U.S.
Country of
origin Rate, $/kg
Brazil 3.07
China 6.16
France 2.43
Germany 2.00
Hong Kong 6.16
India 3.14
Indonesia 4.69
Italy 2.20
Japan 5.12
Mexico 1.90
Netherlands 3.12
Pakistan 4.40
Portugal 2.00
South Korea 3.95
Spain 2.21
Taiwan 6.32
UK 2.26
Air Freight to the U.S.
including fuel
Rate, $/lb and security
$1.39 $1.94
$2.79 $3.34
$1.10 $1.65
$0.91 $1.46
$2.79 $3.34
$1.42 $1.97
$2.13 $2.68
$1.00 $1.55
$2.32 $2.87
$0.86 $1.41
$1.42 $1.97
$2.00 $2.55
$0.91 $1.46
$1.79 $2.34
$1.00 $1.55
$2.87 $3.42
$1.03 $1.58
