Although not widely reported at the time of its passage, the Troubled Asset Relief Program (TARP) program contains provisions that have implications for US businesses that incorporate off-shore services into their business model. The Treasury Department has implemented both implicit and explicit rules to discourage TARP funding recipients from off-shoring and encourage investment in the domestic economy. For instance, provisions limit the amount of call center work that can be handed off to foreign companies to ensure domestic spending of relief funds.
The effects of the new regulatory action can already be seen with top outsourcing organizations asking their vendors to deliver more projects domestically in order to comply with federal funding stipulations and requirements. Additionally, companies are canceling job offers to foreign workers and reconsidering expanding off-shoring programs in response to increasingly negative media reports driving public opinion. According to The Economic Times, contracts signed in the past few months with major outsourcing providers have contained clauses mandating the amount of work to be conducted onshore with domestic workers.
The new regulations have primarily been targeted toward the Financial Services Industry, but public sentiment has caused a general backlash against all domestic organizations utilizing offshore options. This environment has caused a seismic shift in business strategy that will affect buyers and providers of offshore, outsourced services.
In the short term, expect a more balanced approach for organizations considering
The global economy can do a lot of things to a man…but if you threaten to mess with his job AND his beer, that may just be the last straw. By many of the reactions - from TV and barstool talking heads to the 31,000 member Facebook Group protesting the deal - the InBev purchase of Anheuser-Busch is an unacceptable encroachment on American life, liberty and the pursuit of happiness. The reaction is not only emotional, it also stems from an underlying fear that the projected $1.5 billion in annual “synergies” saved by the acquisition is a euphemism for job cuts.
It is sad to lose the sense of pride and tradition that US ownership of Budweiser - a beer that’s as American as apple pie - brings. But there are some aspects of the deal that make the pint glass half full rather than half empty.
For starters, there is little overlap in the location of breweries. And in an era when labor costs, exchange rates and fuel prices have led to a resurgence of ‘nearsourcing‘, we’re certainly not on the verge of seeing a somewhat perishable, expensive to ship product moving to a highly centralized production model.
Instead, early reports are that they’ll leverage their marketing operations for reaching new markets - a great move for AB - whose domestic sales have slowly been chipped away by micro-brews, wine and other beverages.
Just as important to the bottom line is the new world’s #1 brewery’s power to leverage their massive purchasing power. Brewers have been feeling the rise in wheat, barley, hops, water, aluminum and distribution costs. So consolidating their sourcing and procurement operations in order to negotiate better contracts up and down their supply chain is a huge competitive advantage.
It’s extremely likely that we’ll see the new company implement a global spend management process that utilizes a mix of category expertise and technology to negotiate better contracts with vendors and drive “synergistic” savings to the bottom line. In fact, I wouldn’t be surprised to see something along the lines of Telefonica’s procurement model. After all, they’ve proven that procurement (even in a company that’s grown by acquisition) can drive meet the needs of its internal customers across multiple time-zones, languages and borders.
The bottom line is, while there will be cost cutting measures, InBev has a growth-by-acquisition track record that proves they ‘get it’ when it comes to adapting to a new world economy - where dynamic supply chains are key to keeping costs down and effective marketing (which in the case of beer often plays on regional emotions and tradition) is imperative.
Maggie Sikora Frey is a Manager in Ariba’s Spend Management Services group.
After covering #5 Direct Materials, #4 Travel & Expenses and #3 Transportation, we’re down to the silver medalist in our countdown: Temporary Labor. Like the other categories, Temp Labor has been impacted by the fluctuations in the US and global economies. But unlike the others, the impact of rising fuel and commodity prices is not directly responsible for the current sourcing opportunity.
Instead, the market conditions making now a good time to source temporary labor are rising unemployment rates and a trend towards ‘nearsourcing’. Typically when a company is looking to cut headcount, temps are the first to go. So with unemployment rates on the rise, there is a relatively large (and possibly well qualified) labor pool to choose from. And as the US$ continues to loose value, it may make sense to shift positions from abroad back closer to home - a niche temp labor can fill relatively quickly AND reverse course as quickly if necessary in the future.
So, what does Justin Falgione - the Services Category Manager who led this portion of the SIG webinar - recommend in order to make the most of current conditions?
Improve Visibility via Contracts - Make sure any Temp Labor contracts you’re entering into or renegotiating includes language that guarantees you better visibility into your spend. For example, be sure you’re able to access data on all mark-up components. That level of granularity will allow you to seek greater efficiency, say by changing turn around time requirements from 2 days to 1 week if the need doesn’t outweigh the cost.
Evaluate Your Model - Reconsider all of your options, including using Management Service Provider, becoming vendor neutral or a hybrid of the two. Perhaps your company’s needs, resources and budget have changed and you’d benefit from a greater level of service from a managed staffing firm could provide. Or perhaps going vendor neutral will allow you shop around for more cost effective talent.
Consider Temp-to-Perm - A softening labor market means you could have a deeper pool of talent to choose from. And with fewer job options on the table, strong candidates may be more willing to accept temp-to-perm offers, allowing you to try before you buy.
Look at Offshoring/Nearshoring - The weak US$ coupled with rising wages abroad has compressed the wage gap. So it’s a great time to evaluate your IT and professional temp labor mix. The price might be right for moving operations back to the US or closer to home. Or maybe some variation of a Global Delivery Model, as many leading companies have deployed, is the optimum, cost-effective solution.
Justin Fogarty is Managing Editor of Supply Excellence. Any feedback or questions about the blog, its content or contributors can be directed to Justin at jfogarty[at]ariba.com.
Just weeks after the Big Three shocked the industry by announcing plans to move some assembly back inhouse, a labor strike at a major auto supplier is making the automakers appear clairvoyant. Adding to pricing pressures, volume cuts, and rising material costs, the United Autoworkers (UAW) strike at American Axle is shuttering production across the industry.
American Axle is a supplier of parts to leading Tier One assemblers Lear and Delphi Corporation. According to a Purchasing Magazine article earlier this week, American Axle had stockpiled a week’s worth of inventory to maintain supplies to its key customers. As the strike stretched into its second week, depleted inventories have sent shock waves throughout the industry.
According to the Detroit Free Press, part shortages stemming from the strike have forced Lear and Delphi to layoff workers and curb production. The outages have also caused General Motors to shut down six pickup and SUV plants as well as its transmission plant in Toledo, Ohio. The paper reports that American Axle is also a sub-tier supplier to Chrysler and Toyota, although neither company has reported that the strike has caused them to curb production just yet.
However, industry watchers warn that, unless resolved quickly, the strike could have a far more negative impact on U.S. auto manufacturing. The issue? Cash flow. Already pinched by the sagging economy, many auto-suppliers have borrowed against future sales. Production halts could cause them to default on these loans, forcing more auto-suppliers to file for bankruptcy. And that’s not good for anyone.
The events reaffirm the importance of assessing and balancing supply risks and understanding cost structures for both primary and sub-tier suppliers. (A point validated by the priority top supply execs put on supplier performance and risk management in Aberdeen Group’s latest CPO Agenda study.) It also signals a fundamental restructuring of the auto industry; one which will see automakers rethink their global sourcing strategies, bring more production back in house, and engage in more joint ventures and alliances to offset costs, balance risks, and penetrate new markets.
Henry Ford must be smiling. After decades of outsourcing manufacturing, engineering, and other responsibilities to suppliers stateside and in low-cost regions, The Big Three automakers are beginning to bring sub-assembly back in-house.
Beginning this spring, Ford Motor Company — the birthplace of Henry Ford’s vertical integration manufacturing model — will be the first to take back assembly work, starting with the instrument panels for its Ford Taurus and Lincoln MKS sedans. General Motors and Chrysler also plan to in-source select sub-assembly work, although neither automaker has revealed definitive plans yet.
Detroit’s motivation for rethinking their long-held outsourcing strategy is twofold:
Make good on promises in a new United Autoworkers (UAW) labor contract
Counter supply risks associated with an increasingly financially troubled auto-parts industry.
Specifically, the latest hard-fought labor contract includes a two-tier wage structure that pegs wages for new-hires at $14-per-hour, about half the going standard and on par with those of outside auto-parts suppliers. The deal also includes lower benefit costs. In return for these concessions, The Big Three have agreed to in-source thousands of jobs for sub-assembly work that is currently performed by third-party suppliers.
Ford Group Vice President for Global Manufacturing told USA Today earlier this week that Ford was looking at every part and product “to see what may be candidates” for in-sourcing. He added that the decisions for bringing assembly work in-house will go beyond labor costs, and include assessments of capital investment, production availability, material prices, and logistics.
Meanwhile, Chrysler, which suffered a production shutdown recently when a plastics injection molder for its vehicle interiors — Plastech Engineered Products — filed for bankruptcy, provides tough evidence how the move to in-source could help offset undue supply risks. Having bailed out the supplier twice in the past year, Chrysler is now seeking to pull its tooling and manufacturing equipment out of Plastech’s facilities.
Truth be told, in-sourcing flies in the face of conventional supply management approaches in the manufacturing sector, which has in recent years rushed to lower costs and curtail inventory and capacity risks by outsourcing a greater portion of production to suppliers. So, one has to speculate whether automakers would have embraced in-sourcing were it not for concessions in the UAW labor agreement.
While Detroit tries to put a good spin on their in-sourcing experiment, the reality is that the move will likely exacerbate already tenuous relations between The Big Three and the supplier community. And, auto-parts suppliers that lose more business or experience increased pricing pressure by competing with in-house assembly workers, could be at even greater risk of financial decline. Expect things to get a lot worse in the automotive supply chain before (or if) they get better.
Loading ...
