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Offshoring to Reshoring

We look at whether offshoring or reshoring is the better option

15Aug

It doesn’t seem long ago that Nike’s offshoring scandal was big news – heavily criticized for their blasé reaction to the news that sweatshops had been uncovered under their control, Todd McKlean said in an interview, “Hey, we don't own the factories. We don't control what goes on there.”

For some time it seemed like they were content with the bad press if it meant that they were profiting from lower costs and a more cost-effective supply chain. They eventually owned up to their wrongdoings and established a code of ethics called SHAPE (safety, health, attitude, people and environment), which monitors the wellbeing of their offshore workers.

The situation has now spun on its axis – and more than a decade later, big multinationals that were once partial to turning a blind eye to inadequate working conditions if it balanced the books, are now endeavouring to re-locate their supply chain operations back on home soil – with the trend becoming particularly prevalent in the U.S. It was reported by the Boston Consulting Group that the trend to re-establish home operations will result in a 100 billion dollar injection in their manufacturing output.

Historically offshore-prone companies with supply chains in China will return in their droves, bringing with them jobs and added income. The amount of jobs created is no small number, with Gartner estimating the amount to be in-between two to three million.

This desire to bring supply chain operations back to the U.S. is not born out of national pride – it’s a reaction to the levelling of the international playing field where companies are seeing wages inflate and expectations rise – throw in the risk of natural disasters and it culminates in a pretty attractive package for re-location.

Despite the growing fears that offshoring will cease to be a profitable venture; it’s likely that a process of supply chain integration will ensue. This new approach looks to move away from the ‘all-in’ philosophy to offshoring that dominated multinationals train of thought a decade ago. It looks to serve different customers with the supply chain processes that will serve their needs most efficiently – it’s a segmented approach that looks to maximise revenue and customer service.

Modern day supply chains are constantly reacting to the turbulent economic landscape in which they operate in and against this backdrop supply chains need to be categorized so that they fit the needs of individual segments. But segmentation shouldn’t be confused with a collection of individually operating chains, instead, it’s about finding a way to configure them so that selective advantages come together to form a slicker overarching chain.

Cost will obviously be a major driver for change but more than ever it will be about guaranteeing that supply chains are segmented so that they can serve their customers optimally.

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