Purchasers don’t anticipate rise in on-shoring

15 May 2013

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15 May 2013 | Paul Snell

Procurement professionals do not believe companies will prefer to locate services at home rather than offshore them in the future.

At a breakfast debate held in London by 4C Associates this morning, nearly three quarters of attendees voted against the motion ‘the changing balance of risk and reward will see a rise in onshoring over offshoring’, in separate polls for both goods and services.

Speaking for the motion, 4C managing director Ed Ainsworth said there had been a sea change in corporate decision making in the past three to four years. “Most companies aren’t automatically thinking what can we do abroad, whereas five years ago that was a board imperative. Now people are just asked how can I do things the most efficiently, and add the most value to my company,” he said.

He pointed to rising labour and transportation costs in low-cost economies, in comparison to falling costs in Europe, spare capacity and business incentives from governments as motivation for bringing sourcing home. He also highlighted lower risk, corporate responsibility and increased compliance as other benefits.

“The fundamental economics apply,” he summarised. “The costs of doing business [in locations such as China and India] are going up substantially and that will affect the economics. The costs in Europe are remaining constant and going down, and you don’t need a crystal ball to know that will continue for the next five to eight years. Plus all of the additional benefits all apply. I think we will continue to see people bringing manufacturing and services back to Europe.”

Opposing the motion, managing partner Rob Lees said companies were not only looking at cost, but also capability, when making offshoring decisions.

“There is a difference between offshoring and abdication,” he argued. “You need to manage your offshore suppliers in the same way you manage your on-shore suppliers.

“The supplier is an extension of your own company. You cannot take the cost arbitrage and run. You have to get out there, invest in good people to make relationships work, and make the relationships balanced.

“That’s why the balance is still going to be mature, clear, open-eyed offshoring, that doesn’t just take the money and run, but builds capability alongside reducing the costs of your enterprise.”

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