Apparently Accountants Have a Very Different Meaning for the Word Enormous

According to a recent article in Modern Material Handling (MMH), which reported on the Grant Thornton Realities of Reshoring Survey and quoted Wally Gruenes, Grant Thornton's National Managing Partner for Industry and Client Experience, the results (of the survey) could dramatically impact U.S. trade balances, and should provide an enormous boost to domestic manufacturers, retailers, wholesaler/distributors and service providers. Great news, right?

Let's dig in. According to the results of the survey, more than one-third of U.S. businesses are likely to move goods and services back to the United States in the next 12 months. In particular, 42% of executives indicated they were likely to bring back IT services, 37% said they were likely to bring back components/products, 35% said they were likely to bring back customer services or call centres, and 34% said they were likely to bring back (raw) material. Not exactly enormous, but not too shabby either. For one third of companies to at least be thinking in the right direction, that's pretty good. Except when you dig in and realize that the numbers imply that as much as 5% of overall U.S. procurement may come back to the United States. 5% is not enormous! It's not even close. And this is the best case scenario, which we know isn't going to happen.

First of all, someone would have to get off of their @ss and push for a major change (and in your average company, meet a lot of resistance). This is something that only happens in market leaders, which we know are only (depending on which analyst firm you ask) the top 8% to the top 20% of the market. Secondly, a C-Suite executive, still focussed on quarterly numbers and penny pinching, would have to sign off on what could be moderately high one-time expenses associated with re-shoring -- expenses which would be minimal in the mid-to-long term, but which would probably really irk the CFO in the short term (and mess up his attempt to look good for Wall Street). (And given the number of companies that have invested in training over the last 5 years, even though case studies from Procurement training institutes, including Next Level Purchasing, have proven ROIs of 10X to 100X from proper training investments, we know that few companies in North America put long term savings ahead of short term gains.) Thirdly, someone has to be willing to get a little egg on their face and admit that maybe outsourcing (so much) to China wasn't that great of an idea in the first place -- that if appropriate investments had been made at, or near, home to increase productivity, decrease production time (and cost), and improve operational sustainability, similar cost savings could have been made over the long term with an appropriate investment up front. How many pompous C-Suite executives in North America are willing to fess up and admit they were wrong? (Let's put it this way, the Mad Men would be an awful lot poorer if more were.)

Long story short, if even 1% comes back this year, the doctor will join you in the dance of joy because he just doesn't see it happening. He'd like nothing more than for 10% to come back, especially since he's been preaching the importance of Home Cost Country Sourcing since 2007, but believes only the true market leaders will take any actions at all. Most companies just aren't hurting enough to bother.

 

What did you think of this article?




Trackbacks
  • Trackbacks are closed for this post.
Comments

  • 1/12/2014 11:06 AM Dick Locke wrote:
    Thanks for digging in and seeing that the percent "planned" to come back is 5%. One parallel question: what percent plan to increase their overseas operations?
    Reply to this
  • 1/13/2014 8:12 AM Per Wendelboe Nielsen wrote:
    Increase in overseas operations would primarily be determined by market-focus I suppose, e.g. maybe not as much sense in reshoring if more than half of your customers are somewhere else but it would have been interesting to see that question answered as well.

    What I otherwise found really interesting was the reasoning behind the considerations, specifically the 43% stating 'none of these' in the chart :)

    Maybe some regional government 'carrots' in play (They ought to be all over this really).
    Reply to this
Leave a comment

Submitted comments are subject to moderation before being displayed.

 Name (required)

 Email (will not be published) (required)

Your comment is 0 characters limited to 3000 characters.