Daily Archives: October 3, 2010

Has the Outsourcing Craze Finally Stopped?

According to a recent article in the CPO Agenda, in the recessions and its aftermath, companies are re-examining the business cases for keeping processes in-house or outsourcing them. It’s return of make or buy. And it’s about time.

Not that I have anything against outsourcing, if it’s the right function to the right provider in the right location at the right price point, I just have something against outsourcing everything you can put your hands on. At some point, there’s more being done outside your four walls than inside. At this point, chances are that if you haven’t already outsourced most of the value your organization produces, you’re pretty close to that point. And once most of the value is elsewhere, what reason do people have to invest and support your company?

If Back Office Boys are handling your back-office tasks, Marketing Madmen are handling all your marketing and advertising, Rocket Resellers are handling your sales and account management, Stylized Support is doing your support and CRM, Custom Manufacturing Inc is doing your product design and production, and Total 3PL is doing all of your forward and reverse logistics, what are you doing? Okay, you’re orchestrating, but how are you any different from anyone else with the same skill set? So if someone else comes along, builds the same relationships, and finds a way to produce a competing product 20% faster, 20% better, and 20% cheaper, how long are you going to last?Not long. Not to mention, if you are producing 100% custom products, or 100% (very) high volume products, there’s a good chance you can do it cheaper in-house if you build and retain differentiating expertise.

And if you have to invest capital in a supplier’s business to keep your own afloat (as 9% of CPOs in a recent survey by CPO Agenda had to do), or acquire a failing and/or strategic supplier (as 3.6% had to do), it kind of kills the argument for (going overboard on) outsourcing, doesn’t it?

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ISM’s Prediction for the Supply Chain of the Next Decade

A recent article over on the ISM site on Globalization: An Endeavour in Fluidity laid down some predictions for supply chains in 2010 and beyond which were pretty interesting as some of them indicate that supply chains will finally in a direction they should have moved five years ago (as regular readers of Sourcing Innovation and Spend Matters are well aware).

The six predictions made were the following:

  • Networks will be demand based

    instead of being inventory-focussed with the intention of pushing as much product into the market. Every market becomes saturated at some point. A supply network has to be demand based to be profitable over the long term. And sometimes, selling less at an optimal price point is more profitable than selling more.

  • Debt load will hinder, advance initiatives

    While many companies will still file for bankruptcy, those companies that have been aggressively working to eliminate debt will be left with more growth possibilities, which will allow them to fund new supply chain initiatives.

  • A shift in the value of innovation

    The focus will start to shift away from LCCS (Low Cost Country Sourcing) to LCCI (Low Cost Country Innovation) as companies shift their focus to harvesting the innovation potential in the LCCS markets.

  • Sourcing markets become buyers

    As the emerging markets gain a greater share of global purchasing power, organizations will repurpose their networks to supply these markets with goods and services in addition to sourcing from them.

  • Corporate responsibility as a competitive advantage

    Sustainability and corporate responsibility is front and centre in the thoughts of every consumer these days. Those companies seen to be responsible now enjoy greater mindshares than their competitors, and this is leading to greater market shares as well.

  • United States a viable sourcing option

    Due to the weakened dollar, the US will continue to remain an attractive location for foreign investment. Furthermore, home cost country sourcing will begin to take hold as many firms realize that it’s just as cost effective to source and produce locally, as it is to source and produce half-way around the world once you take into account rising transportation costs (as oil prices rise again), uncertainties, the weakened US dollar, and the savings from government subsidies and tax-breaks being pumped into the economy to stimulate it.

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