Blow, Winds, And Crack Your Cheeks!

I've been railing, raging like Lear against the storm, for some time about the inevitability of a turnabout in the stampede to Asian off-shoring - and the creation of long-distance, difficult-to-manage, and arm's-length busineess relationships in extended supply chains.  The pressures of escalating transport costs, rising local wage structures, increased inventory holdings, up-front cash requirements, and delivery uncertainties - among other factors - simply had to tip the economic equation sooner or later.  Maybe it's finally happening.

The New Calculus of Offshoring from the October 2009 issue of CFO magazine (also available at www.cfo.com) hits the issues head-on, and reflects a recognition in the financial community that bodes well for a coming-together of traditional antagonists, accountants and supply chain practitioners.  It's more than ironic that the same executives who argued for distant off-shoring a scant few years ago are now touting the competitive advantages of closing down many such operations.

The article cites a cornucopia of challenges in the old off-shoring model, including unsustainable cost savings, weak project management, poor communications, differing work ethics, error rates, costly travel for oversight, overseas wage inflation, inflexibility, and low speed, among others.  It goes on to outline a number of options in sourcing and "shoring" (some a bit tongue-in-cheek).

But, shifting service and manufacturing functions creates mission-critical challenges in business relationships.  Few of the moves are to in-sourced internal operations.  Instead, they require the creation of new relationships with new supply chain partners, with all the risk and uncertainty implied in commitments to less-well-known entities.  Further, sorting out the right (often blended) solution among the options is, in itself, a test of an organization's acuity in the front-end processes of deciding what kinds of relationships with which partners are the right value-adding combinations.

My opinion?  These moves are no longer isolated events; they constitute an emerging trend.  But, they're not yet mega-trends.  This is the time for supply chain leaders (and those who want to be) to get the relationship act together.  Prowess in this arena will be tested over the next couple of years.

At the end of the day, you'll not want to be Lear, lamenting, "The weight of this sad time we must obey . . ."