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Is Offshoring Really In Decline? .

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In the mind of the general public, there is no meaningful difference between outsourcing and offshoring. Both are mostly considered ‘bad’; many now call for a reversal of this process.

 

We see some actors are vociferously advocating for ’bringing home’ offshored spend and indeed there is a lot of anecdotal evidence that significant parts of American manufacturing returning ’home’.

 

Examples such as Lenovo (which opened a notebook and desktop assembly facility in North Carolina last year) and Foxconn (which is shopping around to see which states offer the best package) are fuelling the view in the US that onshoring is in fact increasing.

 

The Procurement Leaders research team has been testing this sentiment for some years within the purchasing community and, contrary to what you might have read elsewhere, we saw no significant trend of this kind. Rather there seems to be an increased appetite for offshoring (and outsourcing) even core activities. The trend is even stronger for non-core activities.

 

For most organisations (nearly 70% of respondents in a recent Procurement Leaders CPO survey) the geographic location of the supply chain does not feature in their company’s marketing initiatives. This applies to both B2C companies as well as those with a more B2B focus.

 

Even though the ’bring home’ manufacturing campaign may not herald a new ’de-globalising’ phase, it does show an increased consumer awareness and interest in the supply chain. Given that discussion of this topic in the media is almost uniformly negative, it seems that, in the public eye, business has lost the argument with regards to offshoring.

 

But there are many good reasons to support its continuation: it offers consumers the cheap goods they demand and it offers an opportunity to develop an economy blighted by crippling poverty. There are many downsides too: the lack of oversight can (and does) result in abuse and exploitation.

 

Oversight is increasingly being offered by consumers themselves. NGOs, pressure groups and the press are looking deeper into the supply chain and reporting their findings to a shocked world. For all companies now, transparency is no longer wholly avoidable.

 

Companies like American Apparel are opening up their vertically integrated manufacturing model for public examination. This offers a potential model for offshored operations. By publicly showing the dispersed geographic location of its suppliers, the business can add to its brand. The capabilities that derived from a unique global network under the management of a single organisation can itself offer a ’halo’ effect.

 

If consumers can look into the supply chain map, if they can understand the cost drivers and even the price volatility of input goods, they can make more informed choices on the brands that they wish to be associated with.

 

As buyers in business expect more information about their supply chain, so too will consumers. This will yield a distinct competitive advantage for the first to market with information. As ’open-sourced’ supply chains begin to create a cache for some brands in the minds of consumers, then it will soon be expected of all companies.

 

Who understands a company’s supply chain better than procurement? For consumer-focused organisations of the future, it will be buyers that will lead a brand’s drive for competitive advantage.

 

 

This post is an extract from the upcoming Issue 49 of Procurement Leaders Magazine. To find out more about the issue, click here.

Jon Webb
Posted by Jon Webb