APICS Supply Chain Management Now

Reading the Tea Leaves

By APICS CEO Abe Eshkenazi CSCP, CPA, CAE - August 19, 2011

Despite the recent turmoil of the past several weeks, it appears that the Western economy continues to gradually level out. Moving forward, capacity is likely to be a key differentiator. Businesses large and small have grown accustomed to getting more from fewer resources, but that will eventually change. In preparation for this shift, operations and supply chain managers are looking at their available financial, fixed-asset, and human resources and asking, "Is this going to be enough to survive?"

I was interested to read a recent Wall Street Journal story on Bremen Castings, a family-owned foundry and machine shop in Indiana. Executives at this business had embarked on a high-risk program of expansion, but, after yet another downturn, were uncertain how to proceed. Despite the recession, company leaders knew that ultimate success would depend on positioning their organization with the right technological edge. So they sat down and talked about where they are now, how customer needs may have changed, where they see demand going, and if that demand will be consistent with past expectations.

As the article explains, the proposed expansion would increase Bremen Castings' capacity for melting metals and "require obtaining another $5 million bank loan ... as the second phase of a $10 million investment, the largest in the company's 72-year history."

President JB Brown called the development a gamble, but also added, "God forbid the market goes crazy and we're doing nothing."

The author pointed out that, despite strong competition from lower-cost Chinese producers, some local customers are willing to pay Bremen Castings more in order to benefit from nimble performance, smaller orders that avoid big inventories, and less outsourcing-related risk. In this way, the company created value and filled a niche that just may make the difference.

Bremen Castings is not alone here. Numerous organizations are refining their business models and strategizing to become the onshore or nearshore supplier of choice for their customers. Many believe that China eventually will price itself out of its current position. With the value of the yuan increasing, US states offering incentives, and unions and workers granting concessions in order to get back to work, perhaps it's only a matter of time before China's and the United States' net labor costs converge.

Strategic sourcing

Over the past decade, Western companies have been requiring buyer/planners to become sophisticated in global sourcing. The onshoring and nearshoring trend that seems to be gaining momentum requires all supply chain executives to become even more strategic in identifying suppliers. The APICS Dictionary defines strategic sourcing as "a comprehensive approach for locating and sourcing key material suppliers, which often includes the business process of analyzing total-spend-for-material spend categories."

Attendees of the 2011 APICS International Conference & Expo in Pittsburgh will be exploring what supply chain total cost really means in the current economy during the popular APICS World Café . In table groups, participants will share with their colleagues from across the globe how they make strategic sourcing decisions, the ways in which these choices were affected by the recession, and how sourcing practices continue to evolve in today's economy. Further, we will examine related risks and how to incorporate principles of sustainability while successfully meeting customer demand.

These are interesting times that require you to be alert to trends, align your practices to organizational priorities, and respond agilely to changing business conditions. Strategic sourcing is one important business practice that can help ensure the sustainability and productivity of the organizations you serve. I am looking forward to the discussion in Pittsburgh and hope to see you there.


In other news

How APICS Operations Management Now relates to you

Operations management is everywhere. Today, operations management professionals have unprecedented impacts on the global economy. Consider these questions and how today's edition of APICS Operations Management Now relates to you and your career.

  • Do you agree with Bremen Castings' decision to continue with its investment? If not, what would you have done in that position?
  • Bremen Castings is able to outperform its competitors overseas by leveraging advantages such as increased agility and lower risk. What are some other potential competitive advantages of nearshoring?
  • How has your approach to sourcing changed in recent years? 

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