OEMs often base sourcing decisions on a single number: the piece price of the part. But when you’re having parts produced by an overseas manufacturing partner, that can be misleading.
That’s why supply chain experts rely on total landed cost – the full, end-to-end charge of producing and delivering a part. Is it truly cheaper to manufacture a component in China, Vietnam, India or another country? Or does domestic production make more sense when all factors are considered?
Total landed cost brings clarity to those decisions. Global sourcing is often the right choice, but you need to make sure you’re comparing apples to apples before making this important decision.
Looking Beyond the Per-Part Price
It’s easy to see why the unit price gets the most attention. If a manufacturer quotes a part at $1, that number is simple and clear.
But that figure rarely tells the full story. Total landed cost includes:
- The part cost
- International freight/transportation
- Customs duties/taxes (tariffs, VAT and other levies)
- Insurance (protect vs. loss or damage)
- Customs clearance (processing customs documentation, brokerage fees)
- Inland transportation (port of entry to final destination)
- Warehousing and handling (storage fees, handling charges)
- Currency conversion fees
All of these added costs need to be factored into your per-part cost estimate.
The Hidden Charges in Global Supply Chains
Manufacturing overseas can lower the production cost of your parts, but it introduces other expenditures that must be considered.
Freight is one of the biggest. International shipping rates are based on the size, weight, method and value of the shipment. Then there are duties and tariffs, which are often calculated as a percentage of the product’s declared value. These charges can fluctuate with trade policy, adding yet another variable.
Inventory strategy can also have an impact. Some OEMs ask suppliers to hold inventory and release the parts in smaller shipments over time. This approach reduces supply chain risk for the customer, but it also introduces storage and inventory charges that become part of the landed cost.
In short, the real cost of a part includes every step required to produce it, move it across the supply chain and deliver it to your facility.
The Apples-to-Apples Problem
One of the biggest challenges in sourcing is that buyers may unknowingly compare quotes that include different assumptions. Taxes, shipping, inventory and storage aren’t the only considerations.
Tooling specifications can also vary widely. One supplier might quote a tool designed to produce 1,000 parts, while another quotes a tool capable of producing 5,000 parts. The second tool costs more initially but offers a longer service life and greater production flexibility.
When comparing quotes, it’s also important to consider the specific resin grades being quoted by each supplier. For example, one supplier may be quoting a polycarbonate (PC) resin from Brand X, while another supplier may be quoting a PC resin from Brand Y. Although both materials are classified as polycarbonate, they can have differences in their physical and chemical properties, performance characteristics, and certifications. These variations can also contribute to differences in pricing.
Product life cycle is another factor:
- Early development stages often involve prototypes or small test runs that may utilize processes such as CNC machining or additive manufacturing.
- As the design matures, manufacturers may shift to bridge production methods like urethane casting or thermoforming.
- Finally, committing to full production tooling requires higher-grade materials and different manufacturing processes.
The transition between these stages can create confusion if customers expect early-stage pricing to remain the same as production pricing. In reality, each phase requires different tools, materials and processes, all of which influence the final cost of your parts.
Helping OEMs Execute Global Sourcing Strategies
Total landed cost reflects a broader shift in how manufacturers approach sourcing. Instead of simply delivering parts, contract manufacturers like Fathom increasingly help customers design and apply flexible and affordable supply chain strategies. In today’s complex global supply chains, with numerous variables in constant flux, that level of personal support matters more than ever.
Learn about Fathom Edgeworks, our global sourcing service, and how we’re able to offer our customers the lowest total landed cost – guaranteed.
