Wednesday, November 30, 2011

Reasons to rethink offshoring

In the Time to Rethink Offshoring article from McKinsey on Business Technology, the net benefit of offshoring production is offset by the increasing logistics costs. In addition to the logistics costs, managing international suppliers proved to be a difficult task.
Earlier this year, several of Apple's suppliers in China were accused of heavily polluting the environment by Chinese NGOs. See full report here, and related news link here. While rumor has it that the investigations, targeted at certain high-profile U.S. companies, were to retaliate the U.S. government's demand on the Chinese government to stop controlling RMB, the U.S. companies took the hit through dropping share prices.
No matter how hard Apple tries to keep its supply chain secretive, the impacts of such investigation were immediately felt even if many of the manufacturers examined were only suspected to be Apple's suppliers. Even if Apple cares about environmental pollution, with its suppliers in China and often managed by companies from yet another country, Apple's visibility through the supply chain for factors other than quality and cost is low. Apple had to go through 3rd party consulting to receive environmental information from its suppliers about its products since the suppliers refuse to let Apple understand the process and cost structure. Getting the information is difficult, let along helping the suppliers to become more environmentally sustainable.
If Apple's suppliers were in the U.S., the suppliers would be regulated consistently by EPA. Apple's risks is more likely to be limited if one of its suppliers were found to be violating the regulations. When companies are making decisions whether to offshore production, how feasible it is to control the environmental aspects of the production may now become a new factor to be considered.

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