Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I’ll be reviewing a whitepaper entitled “International Sourcing: Offshore or Nearshore?” From Grant Thornton and CFO.com.
The first paragraph of this whitepaper indicates that the whitepaper is based on a survey that Grant Thornton conducted with World Trade magazine. I’m sorry, but I have to admit that I became concerned about this validity of this whitepaper just by reading this paragraph. First, the authors didn’t disclose the number of respondents to the survey and, second, I associate Grant Thornton with being an accounting advisory firm powerhouse and not necessarily a thought leader in the sourcing field. So I knew I would view the findings through glasses of skepticism.
That skepticism kicked in when the paper indicated that 77% of “major US companies” are sourcing internationally. When I think of “major US companies,” I think of the Fortune 500. A quarter of the Fortune 500 not sourcing internationally? Seems a bit high. So, perhaps we have different definitions of “major US companies. But the whitepaper has given me no idea what Grant Thornton’s definition is.
The end of the introduction gave me a little more confidence in what was to come in the whitepaper, saying that “there is a growing awareness that an effective supply chain requires
not just low costs, but also flexibility, responsiveness and adaptability to changing marketplace needs and conditions. As always, cost-per-piece matters. But today there are many more
– and more complex – variables entering into supply chain decisions.” Agreed.
What follows is a statistic-rich analysis of international sourcing practices and plans. Examples of such statistics include findings that 19% of respondents spend between 51 and 100 percent of their supply chain budgets internationally and 79% of respondents who source internationally report that they benefit from lower costs.
However, the statistics that I found most interesting were related to the top six problems experienced with, and ROI of, international sourcing. The top two problems were late deliveries and poor quality products at 61% and 43% respectively, with customs delays coming in a close third. The big shocker was that the whitepaper indicated that a whopping 47% of respondents “see offshoring as as neutral or detrimental to their ROI.”
How do these problems and the apparent lack of ROI affect international plans, both in the recent past and for the future? Well, 28% of respondents indicated that they had brought sourcing closer to the U.S. in the past 12 months and 45% indicated that they are planning to bring sourcing closer to the U.S. in the next 12 months, “relocating sourcing to Mexico, Canada and, in some instances, the U.S.”
Now, I hate to say it, but just having suppliers closer to your headquarters does not mean that late deliveries and quality defects will just evaporate. I hope that readers don’t interpret nearshoring as an instant fix for problems they’ve experienced with suppliers in Asia because, if they do, they may just be in for a big time unpleasant surprise!
The whitepaper closes with recommendations from Grant Thornton’s “supply chain experts” (none of whom, by the way, have a title that includes any mention of supply chain or sourcing). Though I’m sure I’ve sounded cynical in this review, I actually agree with Grant Thornton’s recommendations as they have at their core the theme of being agile and able to adapt to change as well as to assess one’s own supply chain strategy and not blindly follow trends. I’ll close this review with two excerpts that I feel are particularly applicable in the economic environment we are currently in:
“When the economy recovers, which it inevitably will, companies will need to
position themselves to react quickly to [increasing] demand…’The more nimble
the supply chain, the quicker you can react to changes in customer demand – or
changes in the supply market. Companies certainly do not want to lose
opportunities for sales because of long transit times. The potential advantages
of locating manufacturing facilities close to distribution centers, such as
shorter, more reliable delivery times and lower shipping costs, are certainly
worth factoring in to your decision,’ comments (Steve) Lyman, (Grant Thornton
Advisory Services partner).”
“’A one-size solution does not fit all. You need to look at each of your suppliers on a case-by-case basis and determine what makes sense for your company. At the same time, you’ve got to become more flexible to respond to changes in the market. It’s a completely dynamic process that requires greater expertise and knowledge of all the factors that can affect your global supply chain,’ concludes (Tim) Dumond, (principal with Grant Thornton’s Corporate Advisory and Restructuring Services).”
Though this was a pretty thorough review of this five-page whitepaper, there are still some nuggets of good information in it that I haven’t covered here. You can download your own copy from CFO.com (registration required).
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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