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Near-shoring and Re-shoring: Can It Be Sustained? St. Claire Gerald, CSCP Senior Consultant Harambee Logistics Solutions May 13, 2014. Agenda. Off-shoring versus Near-shoring versus Re-shoring Off-shoring. What is it? Outsourcing. What is it ? Why Outsource ?
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Near-shoring and Re-shoring:Can It Be Sustained? St. Claire Gerald, CSCPSenior Consultant Harambee Logistics SolutionsMay 13, 2014
Agenda • Off-shoring versus Near-shoring versus Re-shoring • Off-shoring. What is it? • Outsourcing. What is it? • Why Outsource? • What has Changed Since the 90’s? • Near-shoring. What is it? • Re-shoring. What is it? • What is driving Re-shoring? • TCO – Total Cost of Ownership • Build Where You Sell • Wal-Mart's New Mantra: Made in the USA • Business Continuity and Risk Management • Conclusions
Off-shoring versus Near-shoring versus Re-shoring • Off-shoring • Outsourcing • Near-shoring • Re-Shoring
Off-shoring. What is it? • Off-shoring – Outsourcing a business function to another company in a different country than the original company’s country APICS Dictionary – Thirteenth Edition
Outsourcing. What is it? • Outsourcing – The process of having suppliers provide goods and services that were previously provided internally • Outsourcing involves substitution – the replacement of internal capacity and production by that of the supplier APICS Dictionary – Thirteenth Edition
Why Outsource? • One of the major objectives for outsourcing was to establish a presence in China, Brazil, India and other high-growth countries with the potential to generate huge demand for goods and services
What has Changed Since the 90’s? • Oil prices have tripled since 2000, making cargo-ship fuel much more expensive • Wages in China are now five times what they were in 2000 and are rising at an annualized rate of about 20 percent • The natural gas boom in the US has dramatically lowered operating and facility costs. In Asia, meanwhile, natural gas rates are four times those in the United States • Much of the labor savings in low cost countries is trumped by the hidden waste and overhead costs required to make the overall supply chain function well
Near-shoring. What is it? • Near-shoring – The practice of transferring one’s employees or business activities from a distant country back to a company in a nearby country, where both parties expect to benefit from one or more of the following dimensions of proximity: geographic, temporal, cultural, linguistic, economic, political or historical linkages • In the U.S. companies near-shore to Canada, Mexico as well as many other nations in Central and South America and the Caribbean
Re-shoring. What is it? • Re-shoring – The practice of bringing outsourced services and production back to the location from which they were originally off-shored
What is driving Re-shoring? • Shorter Transit Times • In today’s highly customized and consumer driven market, achieving speed to market is a competitive advantage • Lower Total Landed Costs • Companies who Re-shore can find savings in accrue in every area of the supply chain • Improved Communications • No 12 – 13 hour time difference
What is driving Re-shoring? • TCO – Total Cost of Ownership • TCO is the sum of the piece part, associated logistics and all of the soft costs inclusive of the decision to source an item in a specific geography • Build Where You Sell • Manufacturers are reinvesting here to more efficiently serve the world’s largest free market • Business Continuity and Risk Management
Wal-Mart’s new mantra: Made in the USA • Wal-Mart's new mantra: Made in the USAIndustry WeekWal-Mart U.S. President Bill Simon has announced the retailer is looking for domestic manufacturers to produce its patio furniture. Wal-Mart has promised to buy an additional $250 billion in U.S. products over the next 10 years
Business Continuity and Risk Management • Supply Chain Risk • Risk is generally defined as an uncertainty that endangers the accomplishment of business objectives or a hazard, source of danger, or possibility of incurring loss, misfortune or injury
Business Continuity and Risk Management • Supply Chain Risk
Business Continuity and Risk Management • Risk Example • A company who had outsourced their manufacturing discovered that a supplier was selling the companies parts and components to a family member, who then reproduced the branded product and was selling it for $600 less than the originals
Business Continuity and Risk Management • Risk Mitigation • In addition to “man-made” risk, unpredictable situations and “Black Swan” events such as tsunamis, earthquakes, volcanoes and other natural disasters add irreversible costs to the sourcing process • It is imperative that responses or contingency plans be integrated into any sourcing or outsourcing strategy • This will allow you to mitigate the costs of these consequences and recover more quickly than your competitors
Conclusions • Most companies need to improve how they make their outsourcing and re-shoring decisions, not because they made a mistake but because outsourcing and re-shoring is a dynamic process where circumstances change over time
Conclusions • Re-shoring is not a fad. It is a real supply chain strategy based on real economic forces. Companies are making strategic shifts to their supply chain models to take advantage of the benefits of manufacturing in the U.S. Every week, buyers and procurement professionals want to re-shore work, usually back from China, due to quality-control issues, time-to-market, delivery issues, language barriers or simply to be closer to their customers
Conclusions • Companies that have done their due diligence have found that what you want is not necessarily suppliers that offer the cheapest price, but rather those that can reliably provide the overall capability and capacity to deliver consistent value in an uninterrupted supply chain environment