¿øÁ¡À¸·Î µÇµ¹¾Æ¿Â ¿ÀÇÁ¼î¸µ Off-Shoring Comes Full Circle

åǥÁö

¾Æ¿ô¼Ò½Ì°ú ¿ÀÇÁ¼î¸µÀº Áö³­ 20³â µ¿¾È ÁÖµÈ ¼ºÀå Æ®·»µå¿´´Ù. ±â¼ú°ú ¼¼°èÈ­·Î ÀÎÇØ °æÁ¦´Â °ø°£ÀûÀÌ°í ½Ã°£ÀûÀÎ ÇѰ踦 ±Øº¹ÇÒ ¼ö ÀÖ¾ú´Âµ¥, ƯÈ÷ Á¦Á¶ ºÐ¾ß´Â ´õ¿í ´õ ±×·¨´Ù. ÇÏÁö¸¸ ÀÌ·¯ÇÑ Æ®·»µå°¡ 2008³â°æºÎÅÍ ¹Ù²î±â ½ÃÀÛÇß´Ù. ¿À´Ã³¯ ¹Ì±¹ ±â¾÷µéÀº »ý»ê½Ã¼³À» ¹Ì±¹À¸·Î µÇµ¹¸®´Â ¡°¸®¼î¸µ(reshoring)¡±, ¡°¿Â¼î¸µ(on-shoring)¡±, ±×¸®°í ¡°¹é¼î¸µ(back-shoring)¡±À» ÇÏ´À¶ó ºÐÁÖÇÏ´Ù. ¿Ö ÀÌ·± Çö»óÀÌ ¹ß»ýÇÏ°í Àִ°¡?






Off-Shoring Comes Full Circle


As off-shoring gained momentum over the past two decades, there was little expectation, especially in manufacturing, that the pendulum would ever swing back. In fact, off-shoring seemed relentless. Consider that, by 2003, up to one-half of manufacturing companies in Western Europe were off-shoring some or all of their production. According to the Duke Offshoring Research Network, over 50 percent of U.S. companies were off-shoring production by 2008, double the figure for 2005.1 It addition, it was reported that of those companies, 60 percent had aggressive plans to expand their off-shoring activities.

Large, small and mid-sized companies were motivated largely by price. However, smaller and mid-sized companies had an additional motivation: Unable to effectively compete for top domestic talent, these companies turned offshore in their search for "innovation support." Small companies have been particularly successful at finding and tapping into new geographical talent clusters, such as those found in Brazil, Egypt, Sri Lanka, and Russia.

Because the off-shore model encompasses such an extensive number of nations, products, and practices, its difficult to determine the total dollar size of the activity. But its easy to understand what drove the practice.

It was kick-started by customer demands for lower prices and by the need to compete with companies that were already experiencing the cost advantages delivered by aggressive off-shoring. It was a simple economic equation. Suppliers in China and other low labor-cost countries were offering prices that appeared to be 25 to 40 percent lower than those of domestic suppliers. Other factors included favorable exchange rates, access to cheap commodities, and low shipping rates.

But saving money was just one part of the equation. To make off-shoring a winning strategy, companies also needed to meet target service levels as well as maintain and improve coordination with the foreign providers. Many found that to be truly successful required a senior-level champion for off-shoring efforts, plus buy-in on the part of internal stakeholders and effective procedures for:

- Selecting off-shore providers

- Conducting visits to provider facilities

- Maintaining a corporate "off-shoring resource center"

As youd expect, doing all these things effectively posed big hurdles. But, the expected return on investment was viewed as worth it - at least, until very recently, when the picture appears to be changing.2

Consider a few examples:

- Vaniman Manufacturing is a dental equipment producer that has been off-shoring most of its sheet metal fabrication to China since 2002. However, this fabrication process is now being brought back to the United States.

- NCR Corporation, which has been producing its ATM machines in China, India, and Hungary, is returning all of its production to a facility in Columbus, Georgia.

- Last year, General Electric announced that it was moving some of its appliance manufacturing from China to Louisville, Kentucky.

These are not isolated cases. Rather, they represent a widespread swing of the pendulum. An Archstone/SCMR Survey of Manufacturers reported that nearly 90 percent of manufacturers are contemplating a change, or have already changed their manufacturing and supply strategy. This includes shifting from off-shoring to on-shoring.

The question is, why? In short, many of the factors that once provided the reduced costs of off-shoring have shifted in such a way that they are now erasing many of the savings, making off-shoring a costly choice for many companies.3

A key factor is labor costs, which have risen by double digits in the past few years in some places. In China, for example, by mid-2010, many companies found it necessary to raise wages to attract qualified workers in the face of labor shortages.

Just as China experienced a ten-fold growth in exports from 1978 through 2006, personal income also increased. According to World Bank figures, back in 1981, more than 600 million Chinese were living on less than $1 per day. But, adjusted for inflation, that number had dropped to about 150 million by 2005. By 2011, worker shortages, accompanied by strikes and worker unrest, prompted some of the largest companies to increase wages by 24 to 80 percent.

Its not just labor costs that have risen. Commodity costs have also experienced double-digit increases, ranging as high as 27 percent in one year. Furthermore, transportation costs, such as ocean freight, have increased by 135 percent in recent years. Higher oil prices have also driven up other production costs for manufacturers. One of the big reasons Vaniman Manufacturing, mentioned earlier, is now adopting "on-shoring" is the steep jump in shipping and overseas travel costs, coupled with higher commodity costs.

Upon closer analysis, many companies are even discovering that some of the perceived cost advantages were never really as high as they thought. They hadnt taken into account so-called "soft costs," such as the inflexibility of the supply chain.

Off-shoring most often requires container-sized minimum orders and months-long order cycle times, neither of which provide much flexibility and responsiveness. This can lead to a loss of competitiveness when a company loses the ability to tailor products and services to quickly changing customer demands, or to meet unanticipated spikes in product demand.

When GE and NCR announced plans for on-shoring, a key reason cited by both companies was to be closer to the market so responses could be quicker.

There are many other soft costs that eat into the perceived savings of off-shoring. These include:

- Lack of supply chain visibility

- Insufficient monitoring of suppliers

- Loss of managerial control over issues such as employee turnover

These factors can lead to quality issues, piracy,

intellectual capital theft, and risks to corporate reputation.

As the cost equation tips away from off-shoring, some costly and problematic factors are beginning to be viewed as "no longer worth it." One is the time and money devoted to traveling between headquarters and foreign suppliers that are required for a company to maintain an effective working relationship. Another is the extra effort required to work through cultural differences that quite often result in two very different impressions of what was agreed upon in a single conversation.

Now that rising hard costs, such as labor and commodity prices, are causing companies to re-evaluate off-shoring, they are coming to realize that these soft costs were largely preventing the 25 to 40 percent expected savings from off-shore sourcing from reaching the bottom line.

In light of this trend, we offer the following three forecasts:

First, while well never see 100 percent on-shoring of manufacturing, companies will increasingly analyze the whole economic equation before off-shoring.

In many cases, companies will take a blended approach, employing both models. The choice of one strategy over another will require weighing costs versus flexibility - that is, the relative value of low production costs versus the value of short lead times. Increasingly, the jargon is reflecting the reality:

- Off-shoring is now labeled "efficient sourcing" and meets the need for low production costs.

- On-shoring is labeled "responsive sourcing" as it meets the need for flexibility.

In addition, executives choosing between off-shoring and onshoring will need to take into account three key factors as they relate to their specific business model:

1. Consumer demand

2. Market size

3. Supplier and competitor costs

If demand is relatively stable and predictable, off-shoring may still offer attractive cost savings. If a company is in a market that fluctuates unexpectedly, on-shoring will offer more competitive response times. Market size is a factor since smaller markets tend to be more competitive, with smaller quantities being sold. This will dictate a greater need for flexibility, and therefore it is more likely to require on-shoring. Companies targeting mid-sized markets will benefit from a "blended approach," taking advantage of the cost-savings of off-shoring, but relying on on-shoring to fill short-term needs. In all cases, supplier and competitor costs will be closely watched, taking into account all costs, both hard and soft.

Second, businesses that dont examine all the factors in the choice between off-shoring and on-shoring will likely choose the wrong method and lose a competitive edge.

Companies that adopt a so-called "total cost model" will be better able to craft the most beneficial sourcing model - whether off-shoring, on-shoring, or a blended approach. Key areas they will consider

include:

- Supplier price and terms

- Delivery costs

- Operations and quality costs

- Customer-centric supply capabilities

- A handful of costs that are often excluded from consideration, such as local tax incentives, broker fees, infrastructure technology and facilities, exchange rate differentials, and tooling and mold costs

Third, companies will have to expect more barriers to on-shoring than most people would imagine.

After many years of off-shore manufacturing migration, the infrastructure that once supported domestic manufacturing has been decimated. The highly skilled engineering and technical blue collar workforce has been greatly reduced, and much of the supplier network that once serviced certain industries has gone away. A strong commitment and investment in reestablishing these elements will be needed. Activities such as re-acquiring workforce skills, industrial site planning, plant construction, and infrastructure rebuilding will be tall hurdles that may need to be overcome with state and local tax incentives. Relaxing of oppressive government regulations that have put a stranglehold on businesses over the years will be key to helping make on-shoring a major growth trend in both the U.S. and EU.

References List :
1. Industry Week, August 19, 2009, "Offshoring by U.S. Companies Doubles," by Steve Minter. ¨Ï Copyright 2009 by Penton Media, Inc. All rights reserved. http://www.industryweek.com 2. To access the Xiaole Wu/Fuqiang Zhang research paper "Efficient Supplier or Responsive Supplier? An Analysis of Sourcing Strategies Under Competition," visit the Columbia Business School website at: http://www4.gsb.columbia.edu 3. Supply Chain Management Review, January/February 2009, "Does Offshoring Still Make Sense?" by John Ferreira and Len Prokopets. ¨Ï Copyright 2009 by Peerless Media LLC. All rights reserved. http://www.areadevelopment.com

ÀÌÀü

¸ñ·Ï