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APICS Supply Chain Management Now

To Outsource or Not to Outsource?

By APICS CEO Abe Eshkenazi CSCP, CPA, CAE - January 25, 2013
APICS Operations Management NowIt’s a question that you as supply chain and operations management professionals face and, no doubt, will continue to face in the future. Now, businesspeople of all stripes are starting to pay attention, especially as they pursue business success in an uncertain economy. The January 19 edition of the Economist gives offshoring, “reshoring,” and outsourcing an in-depth look.

In “Home or Abroad?: Herd Instinct,” writers examine companies that have experienced success with offshoring and those who haven’t. One example cited is Zara, the main clothing brand of Inditex, which I profiled in the January 11 edition of APICS Operations Management Now. Zara makes clothes in its own country of Spain and in nearby Portugal and Morocco. According to the Economist, “this costs more than it would in China, but a short, flexible supply chain allows the firm to respond quickly to changes in customer tastes.”

By contrast, Apple decision makers choose to partner with China’s Foxconn, which invested billions of dollars to increase capacity and meet Apple’s iPhone demand. “It built a uniquely flexible and responsive supply chain for the American firm,” according to the Economist. Still, anyone following the Apple-Foxconn story knows the relationship isn’t a fairy-tale romance. There have been reports of poor working conditions at Foxconn, with a riot breaking out in September 2012. The next month, Foxconn acknowledged that it had hired workers as young as 14. “In December, [Apple CEO Tim Cook] announced that Apple would bring some production of Mac computers back from China to America. He said the main aim was to create jobs in America, but the move may also appease critics of Apple’s partnership with Foxconn.”

The Economist article outlines the complex decision offshoring really presents. It’s not just about cheap labor anymore, but company decision makers might not be adequately weighing the pros and cons. In fact, they may be ignorant of them. David Arkless, head of government and corporate affairs for Manpower, a firm that advises companies on production location, says, “Going somewhere else for the sake of cheaper labor is usually a quick fix and avoids the real problems.”

What is the question?


So, when is offshoring a good idea? And, when does it make sense to “reshore” or “nearshore?” To get to the right answers, professionals must consider multiple details, including ease of outsourcing, effectiveness of supply chains, and the growing idea that innovation is more likely when research and development and manufacturing occupy the same space. Issues surrounding labor costs alone are more complicated than they were 10 or 15 years ago.

In the APICS Certified Supply Chain Professional (CSCP) program, offshoring and outsourcing are described as containing many potential benefits, including closer access to raw materials, specific technical expertise, and, of course, potentially lower labor costs. However, these strategies tend to increase the complexity of supply chains and, consequently, bring on greater risk. These include “risks of failure to perform or deliver on time, failure of technology systems or electrical grids for unacceptable periods, or theft of intellectual property. Organizations need to exercise great caution in who they work with and how much to trust these organizations.”

Earning your APICS Certified Supply Chain Professional (CSCP) designation shows your employer that you have the knowledge to help companies navigate this complex economic environment of offshoring, nearshoring, reshoring, and outsourcing. Additionally, if you already have earned your certification and you are supporting your colleagues or those you manage as they pursue the CSCP designation, you demonstrate an important commitment to your company’s current and future success. Find out more about APICS certifications here, http://www.apics.org/certifications.

Earning the APICS Certified Supply Chain Professional (CSCP) designation shows your employer that you have the knowledge to help companies navigate this complex economic environment of offshoring, nearshoring, reshoring, and outsourcing. Additionally, if you already have earned your certification, you can explore supple chain risk management with the APICS Risk Management certificate and newly-released risk management research

Also, I encourage you to support your colleagues or those you manage as they pursue the APICS CSCP designation, you demonstrate an important commitment to your company’s current and future success.  

Questions for discussion

What aspects, if any, of your operations are outsourced? What are the drivers toward outsourcing in your supply chain?
In what ways have attitudes and issues surrounding outsourcing or offshoring changed in the last five years?

In other news

Related APICS education

  • Here or There?
    by John P. Collins, CFPIM, CSCP, and Eric P. Jack, PhD, CFPIM, CSCP
    May/June 2012, APICS magazine

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