When to move production, and when the move costs more than it saves
A 12% unit price saving is not 12%. Here is the arithmetic people skip.
· Sourcing & Supply Chain Lead
Moving production is the most-quoted saving in sourcing and the least-modelled. The quote arrives showing a lower unit price, the case gets built on the delta, and the costs of getting there are treated as one-off and therefore invisible.
They are one-off. They are also large: retooling or tool transfer, requalification of the formula or the material, new inspection baselines, artwork and regulatory changes for a different placement, and the duplicate inventory you carry through the transition so you do not go out of stock.
On categories we have moved, the transition cost has typically run to somewhere between six and eighteen months of the projected annual saving. That does not make the move wrong. It makes the payback period the number to argue about, rather than the unit price.
The second thing people skip is the risk premium. A new factory is a factory whose failure modes you have not met yet. Budget a defect rate above steady state for the first two production runs, and plan the second source before you need it rather than after.
A move is usually right when the saving is structural — a genuine labour, material or duty difference — and usually wrong when it is a quote from a factory buying the business. The test is whether the price survives the second order.
Open the launch countdown planner