SETTING THE BENCHMARK

Preparing for a Changing Global Trade Landscape by Evaluating Total Cost of Ownership

by Jeff Rodgers / January 23, 2025

In an era of global geopolitical uncertainty, a fluid tariff landscape, and evolving consumer demands, optimal global supply chains must balance cost efficiency and flexibility. A critical framework for navigating these challenges is Total Cost of Ownership (TCO), which holistically evaluates the end-to-end costs associated with supply chain decisions. EMS providers with global networks, such as Benchmark, are uniquely positioned to help Original Equipment Manufacturers (OEMs) identify savings and build resilient, future-proof supply chains by applying a comprehensive TCO analysis.

The Fundamentals of TCO

At its core, TCO encompasses the fundamentals of unit cost and landed costs but then goes further to capture all of the costs a company may incur related to the production of physical goods. While these are standard metrics for supply chain professionals, an accurate TCO analysis incorporates additional financial factors:

  1. Inventory Carrying Costs: Calculations include the working capital tied up in inventory, the interest costs of financing it, and risks like obsolescence. Reducing inventory requirements by sourcing closer to end-use locations can mitigate these costs significantly.
  2. Opportunity Costs: A nimble, responsive supply chain lets OEMs fulfill unplanned customer demand and avoid lost sales while helping to mitigate expedite fees. Traditional cost analyses often overlook these potential gains.
  3. Engineering Change Order (ECO) Risks: Longer transit times can increase the quantity of finished goods that must be obsoleted when ECO implementation is required to solve quality issues.
  4. Carbon Costs: More distant supply chains contribute to higher carbon emissions, carrying significant financial and reputational costs.
  5. Tariff and Geopolitical Implications: Fluctuating trade policies can quickly render low-cost sourcing strategies ineffective. TCO helps model the potential impact of tariffs and informs proactive decision-making.
The Need for a Multidisciplinary Team

Successfully evaluating TCO requires the expertise and collaboration of a multidisciplinary team that extends beyond traditional supply chain functions. This team should include representatives from finance, legal and trade compliance, and product development to account for all cost and risk dimensions.

Finance professionals provide critical insights into working capital requirements, inventory carrying costs, and the financial impacts of different sourcing scenarios. Their input ensures that decisions consider the broader financial health of the organization, not just the immediate supply chain metrics.

Navigating the complexities of tariffs, trade regulations, and tax implications requires specialized expertise. Legal and tax teams can help evaluate the risks and benefits of sourcing in specific regions, ensuring compliance and minimizing liabilities. Too often, companies involve their legal and tax teams after sourcing decisions, limiting their contributions to calculating the true TCO of those sourcing decisions; early engagement helps identify options and mitigate risk.

Product development and product management teams offer the "big picture" view of all the disciplines across one product line. Product design choices significantly impact manufacturing costs and supply chain resilience. Collaborating with product development ensures that designs align with manufacturing capabilities and automation opportunities, reducing risks and enhancing the total value delivered.

Supply chain professionals anchor these diverse teams, contributing detailed knowledge of logistics, vendor management, and landed cost analysis. Their insights into the operational aspects of sourcing are foundational to a robust TCO evaluation.

Multidisciplinary Collaboration: A Key to TCO Success

Achieving a comprehensive TCO evaluation demands an integrated approach to achieve a comprehensive evaluation of potential scenarios. Each function within the multidisciplinary team contributes unique perspectives and expertise:

  1. Scenario Planning: Legal and tax experts evaluate tariff impacts, applicable import/export costs, and potential regulatory changes, helping build models that assume various geopolitical shifts.
  2. Financial Modeling: Finance teams model the effects of inventory carrying costs, working capital requirements, and currency fluctuations, which are often not part of supply chain cost analyses. This ensures that supply chain decisions align with organizational financial goals.
  3. Center of Gravity Analysis: Evaluate the optimal manufacturing points based on demand geography relative to a manufacturing location to minimize transportation costs and improve service levels.
  4. Supply Chain Resilience: Supply chain professionals analyze vendor reliability, logistics costs, sole source component risks, and lead time risks, crafting strategies that enhance overall agility and responsiveness.
  5. Design Optimization: Product development teams collaborate with EMS providers to implement design for manufacturing (DFM) strategies, making production more manageable and cost-effective.

When these teams work in tandem, OEMs can create a holistic roadmap for their supply chain strategy, identifying all potential opportunities for achieving optimal cost efficiencies. Engaging Benchmark as a partner further enhances these analyses with expertise honed across industries, providing actionable insights.

Rethinking Supply Chains: The Case for Nearshoring

One of the most compelling insights from a TCO approach is that higher unit or landed costs can sometimes yield significant savings when viewed holistically. For instance, sourcing from closer regions, even at a higher per-unit cost, can reduce inventory carrying costs, lead times, and eco risks. This approach has become increasingly relevant as companies reevaluate reliance on distant suppliers amidst ongoing geopolitical uncertainty.

A notable example is shifting production to Mexico or the United States, where proximity to major consumer markets can offset labor cost differences through reduced logistics expenses and enhanced responsiveness. By shortening the supply chain, OEMs can diminish the impact of forecast errors and adapt more effectively to demand fluctuations.

Technology and Automation: Amplifying the Impact

When a team evaluates where they manufacture their products, they may also need to reconsider how they manufacture them. Automation technologies can offset higher labor costs in regions like the United States, provided these solutions are designed for long-term flexibility. OEMs must ensure that automation investments align with the product lifecycle to avoid costly retooling or low ROI as product designs evolve.

Collaboration with Benchmark during the design phase can help you identify and implement cost-effective automation strategies through our design for automated assembly and automation development. Design for supply chain resiliency, which quickly gained popularity during the COVID-19 pandemic and subsequent supply chain disruptions, is now a popular method among Benchmark customers to balance parts availability and cost. By involving Benchmark early in the process, OEMs can future-proof their production strategies and maximize the return on automation investments.

Responding to Geopolitical Uncertainty

The shifting trade landscape demands agility and foresight. While no one can predict the precise trajectory of tariffs or trade agreements, OEMs can prepare by developing scenario-based TCO models. These models enable quick pivots in response to new regulations or market conditions, reducing the risk of disruption.

For instance, tariffs may create a tipping point where sourcing from a traditionally high-cost region becomes the more economical choice. Pre-evaluating these scenarios and identifying tipping points better positions companies to act decisively and maintain competitiveness.

The Path Forward: Collaboration with Benchmark

Benchmark is an invaluable partner in executing a TCO-driven strategy. With our expertise in supply chain management, engineering, and automation across regulated markets, they can identify opportunities for cost savings and risk reduction that may not be apparent to OEMs. Benchmark, for example, offers services such as:

  1. Inventory Optimization: Helping customers reduce working capital needs by minimizing on-hand and in-transit inventory.
  2. Sustainability Strategies: Evaluating the carbon footprint of supply chains and suggesting adjustments to align with environmental goals.
  3. Proactive Cost Analysis: Building business cases for supply chain adjustments and highlighting potential savings across the TCO spectrum.
Conclusion: A Competitive Advantage Through TCO

In a rapidly changing global trade landscape, TCO is more than a cost metric—it's a strategic imperative. By embracing a holistic view of supply chain costs, OEMs can uncover opportunities for efficiency, improve responsiveness, and build more sustainable operations. Benchmark can play a critical role in guiding OEMs through this process, leveraging our expertise to unlock value and drive innovation.

As companies navigate uncertainty, the ability to think beyond unit costs and engage in multidisciplinary collaboration will separate leaders from laggards. With the right tools and partnerships, OEMs can turn TCO insights into a competitive advantage, ensuring resilience and growth in the face of future challenges.

Manufacturing Surveillance

about the author

Jeff Rodgers

Jeff Rodgers is the Vice President of Business Development at Benchmark, where he works with customers to identify and engage optimal product realization solutions for their needs. Prior to Benchmark, Jeff was a Senior Director of Business Development at Flex. He holds a BBA in Marketing from the University of Oklahoma.

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