Small/medium-sized manufacturing companies continue to play a significant and critical role in the supply chains for the larger U.S.-based manufacturers. They provide jobs, drive innovation and contribute to our communities. However, it’s no secret that their viability and health has been seriously challenged by global competition.
The original business drivers that compelled multi-nationals to source components from off-shore suppliers centered primarily on a desire to achieve lower purchased-part costs, while freeing up internal capacity. Many firms saw outsourcing as a means to achieve a global “presence” in key markets, expand their operating footprint and develop trading/business relationships.
And yet, many U.S. small/medium-sized manufacturers have adjusted successfully to the global challenge and can now deliver competitively against the foreign sourcing options. Is it time for some multi-nationals to look again and reconsider buying more from domestic suppliers?
The Rest of the Story
For some firms, the downsides of global sourcing are beginning to emerge as we get a more complete view of the total costs involved. Some of the new challenges and developing concerns with the offshore approach are beginning to outweigh the original anticipated benefits, including:
- Higher than expected “fully landed life-cycle costs”, including logistics, lead times, packaging, quality and consistency
- Less-than-predicted dependable capacity and capability as volumes increase
- Overwhelmed offshore suppliers who are unable to meet the stringent demands of their customers and unprepared to handle rapid growth
- Challenges in protecting the sourcing company’s intellectual property and competitive “know-how”
- Increased requirements for firms to invest (time, people, capital, IP) in offshore supplier operations to maintain viable operating performance and assure consistent quality
- Increased confusion and complexity as additional sourcing options develop around the world
- Increased operating risk for larger firms implementing their more integrated supply chains with off-shore suppliers in critical roles.
In Our Own Backyard
Fortunately, there now appears to be a developing awareness and fresh appreciation of the overall advantages of using a domestic supply base. Small and mid-sized producers are successfully reacting to global challenges, becoming lean, producing higher quality at production volume levels, embedding the same operating standards as the larger firms, becoming highly flexible in their capacity and adapting to the more complex strategic relationships with their large customers.
The strategic advantages of domestic sourcing improve if the large firm also considers logistics and lead time risk, security issues, use of common standards and ways, IP protection, legal infrastructure for contract enforcement, long-term relationship orientation, local/regional proximity, and dealing with a known and viable entity. Also, for U.S.-based multinational firms and other large national/federal organizations, global issues in their supply base introduce additional logistics, complexity risks, vulnerability in currency rates, multi-national politics and another level of security exposures.
Just Plain Good Business
We are fortunate to have capable small/medium manufacturers right here in Illinois who are playing major roles in the supply chains of some very strong firms, many of which are also headquartered in our state. Many of these large firms, to their credit and insight, have developed strategies and commitments to invest in and help develop more strategic relationships with their suppliers…a move that provides fresh opportunity for these suppliers that have adapted well to the new challenges. The near-term results of these supplier-manufacturer collaborations have already been great. The longer-term prospects are even better. So it makes sense to “bring it back home!” It’s good for business and good for America. IBI