Susan Rosin, our President, came across an interesting article in Supply Chain Digest (http://tinyurl.com/Own-assets-article), which poses the question: “Who will own the Supply Chain?”
The article never totally answers the question, but puts forward a few theories, which conclude that some “poor SOB will”, in the end, own the assets and have to “sweat them out” if they are to succeed.
The “raison d’etre” of outsourcing was/is cost reduction. And while manufacturers claimed they were focusing on their core competencies and outsourcing what they were not able to do well, the fact was that they choose a relatively easy way out to unload assets, reduce costs, and increase profits. Why is it that American companies cannot figure out a way to be cost competitive and manufacture products locally?
Historically, outsourcing, in the logistics area, became very strong in Europe due to a lack of space to build multiple distribution centers and because of complex government trade compliance laws within what is now the EU, in particular. To a certain extent in Europe, outsourcing was not done as a matter of choice, but as a matter of necessity. In the US, logistics outsourcing became more popular as distribution models began to change and the emergence of the Internet forced the brick and mortar players to eliminate assets to be “more competitive.”
The outsourcing of manufacturing and “localization” capabilities was done because manufacturers thought they could become much more competitive if they “off-shored” their manufacturing. When the labor component was a larger portion of the overall cost, this was certainly true. When the contract manufacturers in Asia, whether electronic contractor manufacturers or the textile manufacturers, pay their workers 10% or less than American or European workers make, clearly outsourcing made sense.
But outsourcing led to two very significant developments in the supply chain – globalization and integration. The supply chain quickly became a series of supplier and customer networks integrated together through technology – more or less – developed. And herein lies the answer to the question: who will own the assets? While these assets may appear only on one company’s balance sheet, without the support of and from this companies’ suppliers and customers, the question becomes irrelevant because this manufacturer or logistics provider will go out of business. The global integration of supply chains today has made it more difficult to distinguish who owns what and for whom. This has become even more apparent since the “Great Recession” of 2008-9 when governments interceded on behalf of major industry players.
So the guy holding the bag and sweating out the assets will never be successful with that approach. The future of the Business Chain is in the more tightly integrated supply/demand networks with perhaps, intermediaries (such as logistics providers, 4PLs) orchestrating the flow of orders to manufacturers who have capacity; the transport of goods either into distribution centers who have capacity or by-passing them to deliver to the final customer; and managing the returns process to manufacturers or other logistics providers who can fix and inventory or return product back to the customer. The technology exists to implement this – the real question today is who is willing to combine and collaborate to make it a reality.
Managing Director EMEA