Why It’s Time to Rethink Your Sourcing Strategy: And How Right-Shoring Can Help You Get There
WHY IT’S TIMETO RETHINK YOURSOURCING STRATEGYAnd How Right-Shoring Can Help You Get There 1ROADMAP HOW RIGHT-SHORING AIMS TO RIGHT TODAYS COMPLEX SUPPLY CHAINSGloabalisation was birthed in the late 1970s in India and China with a large increase in the mid-1980s. By the late 1990s, China had become a major country to source from – although it’s not alone. Mexico, Brazil, Turkey, South Eastern Europe, Vietnam, Sri Lanka, Portugal and others have become additional low-cost manufacturing labour hubs since then.But for 25 years, China mostly worked out well. Sure, freight rates occasionally spiked or bad weather disrupted shipping. The Chinese New Year could disrupt things, too. But with a little planning and inventory holding, problems were sidestepped.That said, occasional voices of dissent could be heard. Low labour costs were only one part of the equation, they argued. What about the costs of freight , additional inventory, and tariffs? Surely, procurement organisations should be calculating the total landed cost of single-country sourced materials? But such voices were few. And if ignored, they mostly went away.Occasionally, too, observers would point out Asia’s remoteness: ships took several weeks to steam to the US and Europe. Responsiveness suffered. Retailers were sometimes forced to sell the inventory that had arrived, rather than the products that were most in demand. Manufacturers faced similar difficulties. Unkindly, some observers contrasted this with Spanish retailer Zara, which sold clothing in Europe from factories located in near-shore countries, such as Morocco or Spain itself.Disruption happened again and again. Sars in 2003 was a precursor to today’s pandemic. The 2004 Indonesian tsunami, as well, was a notable catalyst for evaluating the merits of near shoring and third-party risk management. Beyond biological or natural causes, there are also political ones. Skip ahead to the 2017 US trade war with China that, erected tariff walls. EXECUTIVE SUMMARYn Blind globalisation is failing. Today, businesses are thinking in terms of right-shoring – a combination of sourcing nearby and far away. n Developing a new sourcing strategy means weighing many factors: on their own, lower labour costs alone are not the answer.n Forget cookie-cutter strategies. Increasingly, right-sourcing is the correct approach.n Don’t overlook the role that technology can play in operationalising changed sourcing practices..Is now the time for a sea change? Turning the tide on offshoring to China or any single, low-cost country could reap benefits, but if done incorrectly, could cause businesses, and supply chains, huge headaches ÆAnd then, in January 2021, rocketing freight rates: instead of $2,500, it now cost $14,000 to ship a container to Europe 2ROADMAP HOW RIGHT-SHORING AIMS TO RIGHT TODAYS COMPLEX SUPPLY CHAINSAnd now, a lingering pandemic highlights the business continuity difficulties of allowing any one country to dominate sourcing. First, there were widespread shortages due to lockdowns. Then, as Asia recovered, importers struggled with container-loads of inbound product when demand had evaporated. And then, in January 2021, freight rates rocketed due to pandemic-induced import-export deltas: instead of $2,500, it now cost $14,000 to ship a container to Europe.All of a sudden, sourcing solely from any single country, didn’t look so smart. And a growing chorus of voices is now pointing out the potential for near-shoring, reshoring and right-shoring.But this is easier said than done. Near-shoring means finding countries with the infrastructure, skills, innovation and technology, and ability to scale – a tall order, even if suppliers can be found. Reshoring isn’t a panacea either. After 40 years of offshoring, many home countries’ supply It’s in China for a reason: cost. Bringing it back would increase costs and raise pricesRob Handfield, Poole College of Management, North Carolina State Universitybases are hollowed out – skills depleted, and suppliers shuttered.“There’s a lot of talk saying that too much production has been moved to China, and that we need to bring it back,” says Rob Handfield, professor of supply chain management at North Carolina State University’s Poole College of Management. “But it’s in China for a reason: cost. Bringing it back would increase costs and raise prices. And that’s assuming that it could be brought back – in reality, the entire supply chain is now often in China. So, it’s not
