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Fear and Loathing in Global Sourcing

August 16th, 2007 · by Tim Minahan · 3 Comments · LCCS and trade, sourcing, supply risk

With quality glitches and hazardous material scares prompting parents (and toy makers) to ditch Chinese-made toys like last year’s Happy Meal prize, expect a big push to move sourcing closer to home. An article in today’s USA Today reports that toy makers are bringing manufacturing back the the U.S.

According to the article, U.S. toymakers plan to leverage their U.S. sourcing strategies as marketing weapons to win more shelf space at retail outlets and to win a greater share of wallet of concerned parents. “The stampede is on to appear safer than Mattel [which is reeling from recalls of China-made toys], and cash in on consumer fears.”

While quality is one issue, concerns over currency fluctuation, labor cost increases, transportation delays, and intellectual property theft are causing supply managers in all industries to take pause on their China sourcing plans. As early as last year, I predicted that the sagging dollar and an abundance of skilled workers and manufacturing capacity could spark a U.S. sourcing revival.

Yet with concerns about China mounting and India struggling with its own wage increases and transportation infrastructure hiccups, supply managers from Detroit to London would be wise to rethink their global sourcing strategies.

And supply won’t only be shifting to the U.S. Recent studies report a resurgence in sourcing from Central and Latin America thanks to ample skilled labor, competitive labor costs, lower transportation costs, and an effort to counterbalance the challenges and risks of sourcing from half-way around the globe.

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3 responses so far ↓

  • 1 Chris Alder // Aug 17, 2007 at 9:31 am

    It would be interested to see what the current Total Cost Model would be for a given item now sourced in China, when considering infrastructure/logistics investments coupled with dropping stock prices, recalls, and legal issues.

    Where will the US and greater North America stack up now? As an American, I hope your prediction in this article comes true.

    Chris

  • 2 Jim Dixon // Aug 17, 2007 at 10:09 am

    Having built and managed successful factories in Mexico, Central America and China I would offer that all three have the potential to make meaningful contributions to a company’s supply chain and overall business objectives. The logistics to support operations in Mexico and Central America are certainly faster while China can still offer significant cost advantages. To get the highest leverage out of China requires a willingness to invest time to build relationships and infrastructure and, as most are aware, manage the total costs.

  • 3 Tim Minahan // Aug 17, 2007 at 10:22 am

    Jim:

    I fully agree. You can’t enter China lightly. However, not all sourcing decisions are made strategically. In fact, I’ve heard supply execs from top-tier companies say that their aggressive moves into China were sparked by demands from their CEO who picked up that a competitor or peer was sourcing there. Rest assured, that these C-level execs have short memories and will be just as quick to knock on the CPOs door and tell them that, due to the bad press around China affecting their brand and stock price, that they should get out just as fast.

    Unfortunately, many will find that getting out of China can be harder than getting in. “When leaving China it is extremely important to ensure suppliers save face,” a senior Supply Chain exec at Woodward once told me. “Once a company’s reputation is tarnished in China, it is very difficult to come back in. The most effective way to leave is to let your supplier guide you out.”

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