BY ART VAN BODEGRAVEN AND
KENNETH B. ACKERMAN
basictraining
home or away?
The offshoring/onshoring/nearshoring dilemma
SEVERAL EONS AGO, WHEN TRAFFIC MANagers had yet to morph into logisticians or worse,
supply chain managers, an epidemic of just-in-time (JIT) initiatives swept across the planet. It’s
not hard to understand what managers of the day
found so appealing about JIT (which emphasizes
lean inventories with frequent replenishments). In
an era of easily available and inexpensive fuel, the
inventory savings easily offset the costs of added
deliveries. Businesses of all stripes jumped aboard
the JIT bandwagon.
At about the same time, we saw the rapid shift of
sourcing to suppliers far afield—generally to the
Pacific Rim, but always to low-labor-cost countries. Of course, that movement, too, was predicated on the ability to move vast quantities of
goods incredible distances with low-cost fuel.
But as the outsourcing movement gathered
strength, the price of crude oil also began to move.
Actually, it began to gallop. As the price of crude
approached $150 a barrel, the notion of $200-a-
barrel oil—once unthinkable—no longer seemed
preposterous. And no one snickered anymore
when $500 was floated as a possibility or scoffed at
warnings that oil might someday be unavailable at
any price.
Overnight, it became permissible to talk about
the foundational things that were wrong with
long-distance offshoring. It was no longer necessary to whisper about inadequate and unreliable
infrastructures, corrupt officials, the vulnerability
of intellectual property, currency manipulation,
and the like. They’d always been weaknesses, but
low unit costs had a way of blinding the eyes to
reality.
All this has left companies struggling with deci-
sions about how to proceed in the face of escalat-
ing transportation costs. In the abstract, bringing
the work “home”—and soon—is the obvious
response. But the solutions are not always as sim-
ple as firing up the furnaces in the ol’ home town.
And the answer is …
These are all good questions. Unfortunately, there
isn’t any answer, at least not a one-size-fits-all
solution derived from a standard template.
Everyone’s circumstances are different. For
instance, one company might decide that the
transportation savings justify the expense of relocating production to Mexico, while another might
decide it’s better off sticking with its Asian producer for lack of reliable alternatives.
But in the end, the biggest problem of all may be
the volatility of oil prices. Although prices have
retreated from their July 2008 highs, there’s no
assurance that crude prices will remain stable.
