Supply chain execs expect ‘near-shoring’ trend

In the article by "Supply Chain News" published below, The University of Tennessee survey of 240 executives show a response by 52% of the firms that "near-shoring" is in their planning.  Transportation cost was quoted as the primary reason to bring these operations back to the US.

By Chuck Crumbo
Southeast Supply Chain News
ccrumbo@scbiznews.com
Published July 12, 2011

KNOXVILLE, Tenn. -- Slightly more than half of business executives participating in a survey of global supply chain trends expect firms that have outsourced manufacturing to begin moving back toward the United States in the next two years.
The survey by World Trade 100 and the University of Tennessee found 52% of 240 executives from various companies think “near-shoring” will increase for industry in general.

J. Paul Dittmann,
 executive director
 of the
UT Global
Supply Chain Institute

But the study also showed 11% of the executives thought outsourcing or off-shoring would decline for their companies over the next two years.

“This no doubt reflects the debate going on in firms regarding the future of outsourcing,” wrote J. Paul Dittmann, executive director of the UT Global Supply Chain Institute, in the July edition of World Trade magazine. “For those who expect near-shoring to increase, higher transportation cost was by far the most common reason cited (61%).
“In addition, the length of a global supply chain resulting in late deliveries also was cited as a significant reason to consider in-sourcing.”
Dittmann said that the survey — the first of its kind by the institute and trade organization should find out if firms were reducing their reliance on global off-shoring and do more near-shoring.
Nearly three-out-of-five respondents cited the low labor costs as the primary reason to continue off-shoring, Dittmann said, and when companies consider increasing their production capacity, 33% explored off-shoring.
This revelation, though, contradicts the growing concerns about the risk in off-shoring or outsourcing, Dittmann said in the article. Just slightly more than half of the executives (52%) said that they analyze and quantify risk in making decisions about outsourcing work. That means, Dittmann said, 48% do not analyze risk.
Most companies consider unit freight costs when making decisions about outsouring, but only 48% weigh inventory costs.
“Inventory of course almost always increases significantly when production is outsourced,” Dittmann said. “And, for most firms, inventory represents a major cash flow challenge as well as a major expense.”
Other survey highlights:

• 53% of executives think about potential disruptions in their supply chain when making a decision about outsourcing.
• 52% of respondents said they are “very or extremely concerned” about quality of outsourcing.
• 43% said their greatest fear is that the economics of the outsourcing decision will change.
• 59% use domestic talent to managing global relationships.
• 49% rely on hiring people who already have that expertise.

Dittmann said the survey’s results answered some questions and raised others, “but hopefully provide much food for thought for firms managing a global supply chain.”