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					                         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
49

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     A   B   C   D
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                                                      E
               1
               2
               3
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.
27

28

29
     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.
38
39
40
                                                 E
             41
             42
            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

            47
                  China airport to O'Hare, incl fuel and security surcharges

             48
pdated 4/30/11
             49

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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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             50
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

				
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