Tuesday, February 21, 2012

Local Sourcing: A Panacea?

This week readings shed light on some of the problems and obstacles grappling the global supply chain networks. The imminent dangers and pitfalls companies are facing that have global network of supply chains have in fact rekindled interest in reverse outsourcing. So what is reverse outsourcing? Isn't it simply put local sourcing? Local sourcing is the act of getting the products and/or service from local vendors instead of importing the products/services from outsourced and offshored vendors.
Local sourcing has been gaining popularity off lately not only for the reason in discussion but for various other facts such as, policy constraints, enforcements, quality and better control. Local sourcing is an old discussion especially in agri industry. There has been lot of controversies across developing economies (where international retail chains have setup shop) on retail chains stacking canned imported food Vs sourcing fresh produces locally. However, this concept is now slowly creeping across to other items too.
Government policies are also contributing towards increasing and enhancing local sourcing. Recent debates in India in conjunction to increased cap of Foreign Direct Investments have inclined towards mandating International chains to source at least 30% of items locally30% local sourcing mandates. Which I would say is certainly crazy! But there are well stated reasons behind this such as supporting small scale industries, SMBs and local entrepreneurs.
Food chains such as KFC, Mc D, Dominos and others have been silently following local sourcing for the simple reason that the raw ingredients are cheaper and faster to source and process standardization determines the final product quality.[With the exception of Starbucks - which sources the coffee beans from Central America]. Even Toyota is known for building its own set of local vendors and sustenance of this network over years.
However, as seen in case studies local sourcing can be tricky and a really painful process shift for electronics manufacturing industry. Global supply of electronics components and assembly is dependent on few handful of countries such as China, Japan, Taiwan, Thailand, Mexico and Brazil. It is not feasible for each of the other countries to build expertise and scale the production over a short period of time. Extending the analogy, the same goes for India w.r.t Software 'manufacturing' industry. I believe irrespective of the production cost increases (thanks to industry average of 25-30% wage increases in Chindia), fuel cost increases and policy issues outsourcing will continue to thrive. Improvements to process and further optimizations to save cost and time are necessary to cut the slack, but local sourcing for these kind of industries can be hard to come by. The only other alternative is that companies will hunt for next set of destinations where the job could be accomplished for lesser cost. And the migration will begin.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.