Industrial Engineering

Global Supply Chains Are Here To Stay

supply-chain

Picture source: projectnorielblog.wordpress.com

BY: JAMES A. TOMPKINS

INDUSTRIAL ENGINEER – VOLUME  45 NUMBER 7

There are several publications focus on the “bad side” of global supply chain, such as the fuel costs are too high to make global trade cost-effective, U.S. labor costs are lower than China’s, and so on. Although partially true, these are not valid arguments for relinquishing global supply chains by onshoring and nearshoring. Onshoring presented as the way to cut costs, increase adaptability and create highly responsive supply chains. Nearshoring touts the same benefits while reducing labor costs by outsourcing from the U.S. to Mexico, and China to Vietnam.

Global trade has increased from 30% of global GDP in 1993 to 50% in 2012. Even more significant is the natural process of creative destruction, meaning economies evolve from low cost to middle class, where middle-class people are consumers. Hence, if factories in places like China close, the U.S. will be far-shoring consumer products into China as the middle class of China grows.

Onshoring and nearshoring decisions need to be made in the context of two key factors, which are total delivered costs and future consumption. Total delivered costs encompass the final cost of an item after it passes through the full end-to-end supply chain and reaches the end consumer.

Onshoring or nearshoring sometimes can be viable but the global marketplace creates a need for global supply chains. The challenge is putting the facts together and determining the best locations for the company and products.