Was China Ever Worth It?
A recent article in the Supply Chain Management Review covered a recent AMR survey across 133 manufacturers and retailers with over 5 Billion in revenue each and asked them about their sourcing plans from China. The survey found that manufacturers, who believe China contributes the most risk in 12 of 15 categories, are now 2-3 times more likely to decrease sourcing in China.
Nothing against China, but it's about time. I've been against needless global sourcing since day one. Most of the time it just adds time, cost, risk, and, because of the dismal state of pollution control in the ocean shipping industry (which accounts for 4% of all emissions that contribute to climate change globally), pollution. And it wastes limited petroleum reserves. (The stuff takes millions of years to form under the earth's surface, thus, at any point in time, the total amount available, even if we don't know how much there is, is limited.) We can get the same quality of VCR or DVD player from Mexico, quicker, with reduced costs in a number of categories, with less risk, and less pollution.
Now, I'm not against global sourcing ... some raw materials just aren't available in sufficient quantities on all continents, each continent has a different growing season (and greenhouses aren't as cheap or green as you think they are), and sometimes there are only a few places that can produce a new product. In these cases, you should definitely be global sourcing. But you shouldn't be global sourcing just because it's the lowest cost today ... you should be global sourcing because it's the best option, and value, over the long term.
I do believe you address a very touchy subject here and, although I agree with your conclusion, I do not with the arguments you use. Let me propose some others. Basing sourcing decision just on today's cost differential does not make sense, as it takes quite some time to transform supply chains. By outsourcing production to China for example, one not only pushes the manufacturing out, but also migrates the experience and knowledge to the country, killing the local knowledge and as a result making a reversal of the decision at a later stage impossible. It's looking at the long term that is important when making such decisions and identifying the increase in risk (including IP theft and others), that should form the key decision criteria.
Well, to channel Bill Clinton, it all depends on your definition. In this case it's the definition of 'sourcing.' I use it to mean the process of supplier search and evaluation, prior to purchasing. If that's you're definition, you and AMR's clients (doesn't AMR have any opinions of their own?) are wrong.
Global sourcing has to continue If you don't know where in the world the lowest total cost suppliers for your company are, you're not doing your job. Or to put it another way, how can you evaluate the risk without knowing the potential reward?
More coming in my next guest post.