Supply Excellence — Spend Management Town Hall: Shifting Global Trade

Spend Management Town Hall: Shifting Global Trade

May 2nd, 2008 · by Tim Minahan · No Comments · LCCS and trade, best practices, events, sourcing, supply management, supply market dynamics, supply risk

When we last left our daring trio of Spend Management Town Hall panelists, they were debating the best ways to get a handle on services spend in the ever tightening global economy. The esteemed panel, which included the CPOs from both Kellogg’s and Whirlpool, had turned their sites on services spending to counter the double-digit inflation striking the core commodities their teams buy.

Another key strategy on the panelists minds: global trade. As is often the case these days when discussing low-cost country sourcing (LCCS) or global trade, the panelists spent most of the time discussing their China strategy. While the debate ranged all over the map — from rising labor prices to the emerging consumer class — three core themes emerged for Supply Excellence readers to consider when crafting a global sourcing plan.

Buy where you make - With the dollar’s demise and oil and transportation costs skyrocketing, Kellogg’s and Whirlpool are both re-evaluating their global sourcing strategies. And nearshoring is once-again becoming more prevalent. Factor in an increasingly skilled workforce in our neighbors to the South and Whirlpool SVP of Global Strategic Sourcing, Mark Brown said, “it’s kind of a jump ball between Mexico [and China] to service the US market.”

Alistair Hirst, Kellogg’s VP of Global Procurement, stressed the importance of sourcing “as locally as we can,” albeit for different reasons: to hold down transportation and tariff costs, satisfy local content needs, and get products to market faster. After all, consumers like their Corn Flakes as fresh as possible.

Michigan State University Professor Joe Sandor noted that the cereal king was following up the ”buy where you make” philosophy that has been so successful for leading Japanese automotive manufacturers, such as Honda or Toyota.

The panelists noted a number of new dynamics when sourcing South of the Border, including banditos and local government corruption. But, when weighted against the rising costs of doing business in China, the lower transport and border crossing cost, Mexican truckers newfound ability to transport deep in the US, and a host of other factors are making nearshoring a more attractive proposition for many companies.

You can’t turn back the clock - No great shock that our panel weighed in on the side of free trade. In the words of Alistair Hirst, “we certainly encourage free trade” and “think [renegotiating NAFTA] would be a huge mistake.” Professor Sandor seemed to agree, yet took a more human angle in admitting “clearly global trade hurts some people, but the fact is it helps more than it hurts.”

In an election year at a time of economic uncertainty and populist (sometimes borderline jingoistic) rhetoric coming from both sides of the aisle, how the US deals with labor and trade issues is somewhat up in the air. So, Mark Brown’s advice that “maybe the strategy is, you better be flexible and you better be able to react quickly because our ability to predict is somewhat limited” was the smartest tip the audience heard that night.

Predicting the future - And speaking of looking ahead, all three panelists were eager to point out that anticipating what’s next is the multi-million dollar question for supply chain professionals.

So, where is the next China? For Whirlpool, the answer is currently Vietnam, where a lot of their supply chain has moved. But Mark Brown wasn’t quite willing to say where their supply chain may shift after that.

On the other side of the coin is emerging markets. Again, China is strong possibility, which as Professor Sandor said is “not just a place for cheap labor, it’s the fastest growing market for end products.” No real shock there. But luckily, Kellogg’s Alistair projected that “Russia’s going to be a huge developing market for the future.” (Although Mr. Hirst may want to check his long-term demographic trends. Russia’s population continues to decline. So the consumer boom there may be short live. Literally.)

Still more Town Hall recaps to come as we look at the panel’s discussions of Environmental & Social Responsibility and Risk Management next week. In the mean time, listen to the full podcast of the Global Trade discussion. And download 10 Tips for dealing with these trends in Global Trade so you can start taking action today.

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