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Supply Networks: Get Dynamic or Die

July 8th, 2008 · by Tim Minahan · 2 Comments · LCCS and trade, automotive sector, best practices, sourcing, supplier management, supply management, supply risk

The cover story in BusinessWeek this week asks the question we’ve been asking for a while: “Is it time to relocate manufacturing and supply back to the U.S.?”

A brief look at the numbers would suggest that the U.S. is a very fertile sourcing ground. (Automakers from Japan and Europe sure seem to think so.) Consider these factors:

  • Since 2002, the U.S. dollar is down 30% against world currencies — and is falling against the Chinese yuan.
  • Wages in China are climbing 10% to 15% per year.
  • Oil prices have boosted shipping costs from low-cost regions like China by 150%.

Changes like these have made U.S. manufacturing costs much more competitive. In the BusinessWeek article, the CFO of farm-equipment maker Donsco says rising shipping rates and the weak dollar have his company considering buying from U.S. sources again: “American foundaries can now compete head-to-head on cost.”

What’s stopping us (and Donsco) from sourcing domestically? Our previous global sourcing decisions.

Quite simply, our overindulgence in offshoring in recent years has decimated U.S. manufacturing. Spurned U.S. manufacturers and workers have relocated elsewhere, retrained, or, worse yet, shuttered altogether.

To be fair, America remains among the worlds biggest manufacturers, but capacity and workforce cutbacks — not too mention tight economics and financing — won’t allow suppliers to ramp up quickly to support new demands. Businessweek estimates that it may take a decade and billions of government, business, and private equity investment to revitalize U.S. manufacturing: “The map of global commerce can’t be redrawn overnight. American factories and supplier networks in many industries have withered in the era of globalization, so it will take lots of time and capital before the U.S. can become a big player again.”

The conundrum in which we find ourselves only reinforces the need for companies to develop sourcing and supplier management strategies that allow them to quickly enable and disable supply chains to capitalize on new market opportunities and mitigate the impacts of changing market dynamics or risks. Those who fail to develop and manage dynamic supply networks will be at a severe cost disadvantage and lag competitors in market responsiveness.

Tomorrow we will examine the core tenants of developing dynamic supply networks and review how some companies are making this a reality.

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2 responses so far ↓

  • 1 Dave Inglis // Jul 9, 2008 at 6:21 am

    Good comment on what we should have predicted over the last few years but we were all carried along by the “low cost” of global procurement. Looks like its come home to roost!! The UK is also in the same position as the US but we have always had a focus on the base of the supply pyramid (SME’s) where the innovation/real work takes place and that will still be our way out of this mess. The larger companies will still shift their work around the world but there is still a solid core homegrown capability which we should nurture and promote.

  • 2 Randy Littleson // Jul 16, 2008 at 4:49 pm

    Good topic. The shifting sands have certainly created an environment that would cause people to pause and rethink things. You have the issues that you raised. I also think when people/manufacturing cost is a factor there are still other countries being considered now. The other factor is that I think the world truly has become flat in that companies today really look much more at the global market, so manufacturing presence in the local geography has a distinct advantage today as well.

    Nonetheless, an interest set of evolving circumstances that will cause people to pause and reconsider all the issues.

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