While outsourcing certain functions can save money, be careful because such arrangements often have hidden costs caused by administration headaches, unexpected labor disputes, poor communications and other factors. In fact, some companies are discovering they can save money by moving previously outsourced functions-including manufacturing-back home. For example, the most-cited reason for moving production to China was low labor costs. But Chinese wages are beginning to increase.

On top of that, shipping costs have increased. "We saw the fuel prices skyrocket," says Mark Cordell, president, Distributed Valves Division, Cameron International, and "we saw freight costs just skyrocket at about the same pace."

As far back as August 2008, Supply Chain News quoted Dr. David Simchi-Levi, Professor in the Department of Civil and Environmental Valves Engineering at MIT, as saying increases in fuel prices and transportation costs have led many companies to a tipping point, "where logistics costs have started to negate the unit cost advantages of China and other Asian countries." Some have shifted production to Mexico, and others have brought it all the way back to the U.S., according to the article.

There also can be differences in quality between offshore and American-manufactured goods. "I don't want to be too specific," says Knox, "but I'm well aware of a number of situations where quality coming from China has not been up to expectations." And, says Oaks, there's that nagging worry: "What will happen with my Chinese sources? I wonder if they're stealing my patterns?"

Not all outsourcing is to China, of course; European companies tend to look to Eastern Europe for low-wage labor. But North America can look good even compared to Eastern Europe, according to Oaks. Many global companies have been sourcing low-tech components from that area for several years, he explains, and still are doing so, but "we're sourcing in Canada, where people are paid a good wage, where there are strict environmental regulations, and these guys provide us the material we need in a timely and competitive manner."