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SCMR2009n1_DoesOffshoringStillMakeSense

SCMR2009n1_DoesOffshoringStillMakeSense - ENABLERS...

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ENABLERS EXCELLENCE INTEGRATION DOES OFFSHORING STILL MAKE SENSE? By John Ferreira and Len Prokopets John Ferreira (jferreira® archstonecomuitmg.com) is princifal and manufacturing indtistr}' practice leader fijr Archstone Consulting. Len Prokopets ([email protected]} is a principal focusing on soiircing and procurement at the firm. For years, the concept of offshoring, or moving production and/or sourcing operations to a foreign country, has been the mantra of any supply chain manager looking to cut costs. Now, amid volatile oil prices and an uncertain global economic future, this analysis suggests that might not be such a good idea. J ust when thousands of manufacturers thought that off- shoring a significant portion of their manufacturing and supply operations has given them competitive parity, the game may be changing again. The same factors that made offshoring a sure-fire tactic for reducing costs have shifted dramatically and now are eroding many of those savings. As a result, on-shore and near-shore pro- duction is now viable and competitive in many cases. You may want to bit tbe hold button belore moving more of your supply operations off-shore; many manufacturers are find- ing tbat the numbers just don't add up anymore. In fact, a signif- icant percentage of U.S. manufacturers are seriously reconsider- ing tbeir production and soureing strategies and even beginning to return manufacturing that they had once moved to low-cost countries. The Way Things Were Over tbe last 10 years, manuiacturers have viewed offsboring as a necessity—one virtually mandated by the price demands of customers and hy tbe cost advantages of eompetitors tbat bad already aggressively off-sbored. Tbe rationale for cjffshoring was. in fact, a ratber straigbtforward economic one. Suppliers in low cost countries sucb as Cbina have been ahle to offer "perceived" prices 25 to 40 percent lower than tbose available on sbore—^the typical tbresbold or tipping point for moving off shore. Tbese reduced priées were made possihie hy low labor costs, eheap commodities, and favorable exchange rates. Many manufacturing executives now recognize, however, tbat quality problems, longer supply ebains. lack of visibility, piracy and inteileetual capital tbeft, are also part of the off- sboring operation, meaning tbat not all of tbe 25 to 40 percent off-shore sourcing savings goes to tbeir bottom line (Exbibit 1 20 SUPPLY CHAIN MANAGEMENT REVIEW • JANUARY/FEBRLARV 2009 www.scmr.com
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Offshoring EXHIBIT 1 Top "Soft" Issues of Offshoring Cycle/Delivery Time Supply Chain Flexibility Visibility, Coordination and Control Over the Supply Chain Bottlenecks in Logistics Networks (e.g. Ports, Transportation) 0% 10% 20% 30% 40% 50% 60% % of Manufacturers Reporting the Issue as a Top Concern Source: 2008Archstone/SCMR Survey of Manufacturers lists some of those "soft" issues that can impact the over- all costs of outsourcing). In fact, the perceived offshoring cost advantage may have never really been that high and likely significantly less when "ail-in" costs are considered.
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