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Supply Chain Insights - an Industry Veteran's View

Posted March 13, 2013 8:00 AM by larhere
Pathfinder Tags: global sourcing HVAC

In my thirty plus years in Strategic Supply Chain I have come to appreciate the constant evolution in our business. I'd like to share with you today my insights on three important questions.

1. What are the primary risks in Supply Chains?

You have to go back to the basic 3 components of any purchase transaction, those being

  • Service
  • Quality
  • Cost

Like a 3 legged stool, you won't be successful without all 3. Service can be broken down further into delivery, technology , ease of doing business and certainly a few more specific categories. Quality is first, because in today's world of certified suppliers, and no incoming inspection, the next person to find poor quality is likely to be the consumer, which according to the old rule of thumb, costs 10X more at each transactional level, than if it had been caught at the previous level. With Supply Chains now extending half way around the world, there would likely be 60 to 90 day's supply of material in the chain, and if determined to be defective, recovery time could present a business ending injury. And then there is the impact to cost, which should always be viewed as the total cost of ownership, not just the purchase price.

2. Is the negotiation process a win-win process?

It should be. Unfortunately business has moved to a more transactional approach in the last few decades, with intense global price competition, and new tools such as E-commerce and reverse auctions for major component purchases. It is difficult to quantify some of the more subjective elements that contribute to total cost of ownership, like access to emerging technologies, the ability to innovate, the availability of application engineering and other technical support. These factors may be overlooked, or not properly accounted for in a purchasing transaction as well as a reverse bidding situation.

3. Is "reshoring" of suppliers a reality?

"Reshoring" would seem inevitable given the rising cost of transportation driven by energy costs. Additionally, the rising standard of living in the current Low Cost Countries, as well as the falling standard of living in the USA (as much as I hate to say it), will continue to reduce the attractiveness of off shore alternatives. Certainly it will be quite a while before the living standards equalize, if they ever go that far, but as the exporting countries costs rise by 10%, the USA only has to fall by 10% to make a 20% overall advantage disappear. We have to question whether the manufacturing infrastructure will be available to accept the "reshored" business volume, and/or will there be a favorable enough regulatory environment in the USA to encourage the necessary entrepreneurial activity?

Editors Note: CR4 would like to thank Gordon Roberts of GEA Consulting, for contributing this blog entry, which originally appeared here.

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Join Date: Aug 2012
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Re: Supply Chain Insights - an Industry Veteran's View

03/14/2013 8:17 AM

A comment on "reshoring".

I run a chemical manufacturing business, located in Canada. Most of our raw materials are supplied by brokers located in Canada, who range from small firms located in the province to large multi nationals. a common point to them all is that they usually have established trading relationships with North American, European and Asian countries, and we see a continual variation of material manufacturers within our spec range as each of them tries to be the most competitive. I would say the general trend recently has been towards more domestic and Asian product at the expense of European suppliers. We have an unwritten policy for what we prefer though- Canadian, US, European, India/Philippines/Korea, remainder of Asia (we don't use any Japanese material that I'm aware of) in that order.

Why? Reliability. Nothing against the US, but there's a border between us that means if I need something in a hurry & my supplier doesn't have it, that's one more thing to worry about even though I'm far closer to New Jersey than to Calgary. Apart from that I will gladly support the USA. The same goes for the Europeans, and we find that the first range of Asian material is generally more reliable and consistent than the second.

So I would suggest that there is a "comfort level" there too, especially with small to medium businesses- that knowing there are fewer steps in the ladder from point A to B is also worth something, as well as knowing that the steps in any particular ladder may be a bit more reliable than those in another.

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