June 23, 2010
by Deborah Aarts
Pirate attacks on the Gulf of Aden. Tainted children’s toys manufactured in China.
The eruption of the Icelandic volcano. Political unrest in Thailand. The Mumbai bombings. Fluctuating currencies. Unstable national economies.
In the past two years, a lot has happened to call into question the value of sourcing product from low-cost overseas markets.
Not coincidentally, there’s been a groundswell of support—rhetorical, at least—for the idea of repatriating manufacturing to Canada or the US. In one widely reported example, Vancouver, British Columbia-based popsicle sticks manufacturer Global Sticks Inc ceased its Chinese production and opened a factory in Thunder Bay, Ontario because it deemed that, all told, a Canadian plant would be cheaper and less risky than one overseas.
The situation leaves procurement professionals at a crossroads. Today, it can be very risky to source from low-cost countries. But at the same time, goods produced domestically (or even elsewhere in North America) almost invariably have a higher sticker price than their offshore counterparts, which is an issue in this period of budget lockdown.
More than ever before, navigating this choice is the job of the supply professional, says Keith Carruthers, president of Strategic Sourcing International Inc. “When the economy hit the rocks, companies started looking to those of us in supply chain management to cut costs,” he explains. “All of a sudden the importance of our profession has been elevated because they’re looking for help. Companies are more eager to hear about alternatives because they urgently need to save money.”
The pressure is on. The decision to source globally or locally is arguably the most important variable in any supply chain. In today’s business environment—where long-held truths have been inverted—it’s vital to make an informed choice.
Changes in the global market
Leading up to the market crash of late 2008, the prevailing attitude among many purchasers towards low-cost country sourcing (LCCS) was unabashedly optimistic.
Today, several factors are complicating that outlook.
“There are a lot of short-term issues we’re dealing with,” says Rick Cleveland, president of Toronto, Ontario-based consultancy Altered Perspectives. “There are issues with security, be it terrorism or piracy or government security changes. There are issues related to pandemics, and the closing of national borders. And pretty much everyone is aware of issues related to the cost of oil. In this environment, a lot of the things that made offshoring attractive start to look not so attractive.”