Nathan Pieri, senior vice president, marketing and product management for the
consultancy Management Dynamics Inc.,
says Mexico offers a number of advantages
for companies seeking to place or move
production closer to North American markets. Beyond the fuel savings and the narrowing of the wage gap with China, Pieri
cites the ability for companies producing
in Mexico to handle product returns faster
and more effectively, and to engage in
“postponement”—a strategy that allows
them to delay investing in a product until
the last possible moment and still get
goods to all major U.S. markets in one to
five days without relying on pricey air-freight services.
Pieri says the “risk factor” in doing business in China is about double the risk of
trading with NAFTA countries. He adds
that many businesses don’t fully factor in
the cost of intellectual rights infringement
when developing their sourcing strategies.
“It is surprising how slow the international
trade community is in reacting to this
issue,” he says.
Ganster of Tompkins acknowledges that
intellectual property violations are an
important issue. “But you have to balance
those risks with what might be the bigger
risk of not doing business in China at all,”
he adds.
Song of the south
Those companies looking to source their
production farther south in the Americas
may find the existing infrastructure poses a
significant impediment. As of year-end
2004, of Brazil’s 1. 75 million kilometers
(about 1. 1 million miles) of roadways, only
96,353 kilometers ( 59,871 miles) were
paved, according to data from the Central
Intelligence Agency’s World Fact Book. In
Argentina, about one-fourth of all of the
country’s roads were paved, according to
the CIA book.
Michael B. Berzon, who spent 27 years
at DuPont Co. before forming his own
consultancy, which is actively involved in
Latin American logistics, says there has
been little change in Argentina’s infrastructure since then, and at best modest
improvement in Brazil’s. Berzon says most
of the paved roads in the two countries
link their commerce centers. However, he
adds that the vast majority of
trucks travel over those relatively
few paved roads, creating enormous congestion.
In Brazil, the problem is compounded by an inadequate rail
intermodal network, says Berzon.
The country’s rail system is capable
of handling only bulk agricultural
commodities moving from Brazil’s
vast interior to the major cities and
ports, he says. Virtually all merchandise traffic to and from the
nation’s ports moves by truck,
Berzon says, creating an enormous
bottleneck at ports and highways.
In the end, analysts contend,
multinationals are best able to control their global sourcing risk by
diversifying their geographic sourcing locations instead of using just
one, and by increasing their IT
investment to obtain clearer visibility across the supply chain. Above
all, these analysts say, executives
must do a better job of analyzing
the total landed cost of each offshore product and understand the
changing tradeoffs between the cost
savings from offshoring and the rising labor and shipping expense that
accompanies it.
“We don’t expect to see low-cost
sourcing go away,” Dan Brutto, head
of UPS International, said in a statement accompanying the Nov. 1
release of the joint survey with the
Economist Intelligence Unit. “But it
will look different in the future. The
keys to successful sourcing from
low-cost countries are like those of
supply chain resilience in general:
understand the issues, structure the
supply chain appropriately, monitor
performance, and work with suppliers to improve operations.” Brutto
added that diversified sourcing and
“near-sourcing” are likely to
become supply chain management
best practices in the future.
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