Recently the once heralded business saviour global sourcing has started to receive a backlash. Purchasing.com has “The 9 hidden costs of global sourcing” as their March cover story and IBMs recent “The smarter supply chain of the future” report suggests that globalization has contributed more to revenue growth than to cost savings and efficiency. The report claims that many companies are encountering issues with global sourcing including:
- Unreliable delivery (65%)
- Longer lead times (61%)
- Poor quality (61%)
Add to this the increasing protectionist leanings of parts of Western Europe and the US one can sense a clear pattern of backshifting in the supply chain.
But is this backlash really deserved; and is it really closer always better.
I would say no, just as I felt that the unquestioned enthusiasm for global sourcing was that only way to go a few years ago. The flock mentality that led many companies into Asia and that is now leading them homewards reveals a lack of long term strategy and – in some cases – a lack of complete understanding of what the real business value of efficient purchasing is.
Purchasing.com blogger Michael Higgs nails this spot on (in one sentence, mind you) in one of his recent posts: “I would say the biggest fault I have found is that companies get overzealous and either don’t put anything outside the U.S. or they put everything.”
So don’t let the talk about the decline of global sourcing obscure the real target; market prices, expected quality and supply chain flexibility. If you get these parameters right, it doesn’t matter if your supplier is in Mexico, China, Portugal, Slovakia, Sweden or the US.
April 1, 2009 at 5:37 pm
Something that encourages the behaviour mentioned by Michael Higgs is the often found company target of switching x% of spend to low cost economies. The “x” is usually an arbritrary number which has little or no science behind it and often drives activity which is ultimately of little or no benefit.
In addition to the lead time, delivery and quality concerns, it is important from a cost perspective not to just take a snapshot view in order to determine sourcing feasibility. As we are finding today, what made sense from a cost perspective yesterday may not make sense when commodities, currencies, freight costs etc. change significantly. Companies need to look at “what if” scenarios to understand how such changes would impact the total cost and work out how much cost “buffer” they have when making sourcing decisions.