Procurement’s Role in the Reshoring Trend

I took advantage of my six spare (but, alas, non consecutive) minutes over the holidays to get caught up on some reading. After all of the gifts had been opened and all of the mess had been cleaned up, I found one last gift of the year in the December 2014 issue of Supply & Demand Chain Executive. It was from Rosemary Coates, Executive Director of the Reshoring Institute and President of Blue Silk Consulting. In an article, titled ‘What Happens When you Decide to Leave China?” she details in gory, gripping detail the crises that may await companies not prepared for the pushback from local workers as well as the potential loss of equipment, technology, and intellectual property.

We’ve all become accustomed to thinking of reshoring as a wonderful thing – and Coates article does not change that. The gains in proximity, flexibility, and cultural similarity from locations moved closer to consumers are real, but so are the complexities associated with closing an operation in China. Here is an example from Coates’ article I promise you won’t forget:

“Western executive Chip Starnes is the president of a Florida-based medical supplies company that decided to leave its manufacturing site in China for an even lower cost manufacturing site in India. When the Chinese employees got wind of what was happening, they locked him in his office for days and would not allow him to leave. The 80 or so workers were concerned about getting paid for their final days at the factory, and didn’t want Starnes to leave until they had their money. The workers, who saw the equipment being packed for shipment to India, forced Starnes into his office, and even deprived him of sleep by shining bright lights and banging on the windows of his office all night until they were paid.”

CEO Chip Starnes held hostage by workers.
CEO Chip Starnes held hostage by workers.

I’m sure I am making an understatement for everyone when I say, “gee, that sounds awful.”

There is no way you can stop reading an article after a story of that kind, so I stayed plugged in right to the very end. And that’s when it dawned on me: procurement can not afford the luxury of just thinking of reshoring as a happy feel good movement without also getting granular visibility into how the timing and planning for the transition could affect their supply chain.

And the point is quite valid that it doesn’t really matter where an operation is being moved to. Whether it is being moved to a lower cost location because salaries of employees and demand for workers cause the low cost country status to evaporate, or being moved back to North America as flexibility and agility are prioritized over cost, the people being left behind are equally affected.

And if the only risk was a disrupted source of supply, the answer would be relatively simple – contract with multiple suppliers. But that isn’t it. According to Coates’ article, it may be hard to remove all equipment and tooling from foreign facilities. There is also the grey area of proprietary designs and intellectual property. Once you have trained people to make something to spec, or let them see how it is done with what kinds of materials, you can’t undo that knowledge just by removing a mold or terminating employment.

A few suggestions for procurement teams working with suppliers that have global operations and supply chains:

If your supplier is planning to reshore an operation, it is well within the scope of risk assessment to find out what their plans are and what guarantee they plan to offer against disrupted supply, lost equipment, and compromised IP. Find out if they have direct employees on site, how they are managing the transition with local governments, and if they have put contingency plans in place.

If your supplier already has manufacturing operations overseas in a country where there is the potential for retaliation in the face of a decision to relocate (whether they are reshoring, or in the case of poor Mr. Starnes they are moving to another offshore location) find out exactly what part of their production process is being handled overseas and just how much involvement third parties are having.

If your supplier is proposing to lower their costs by moving an operation or production process abroad, make sure you find out if they are considering the total costs of that move, because it can not be easily undone once started. And understanding the laws (and common violations of those laws) in the locations they are considering is as much your responsibility as it is theirs.

And that brings me to the final point: first vs n-tier suppliers. This is just another reason to know where your suppliers are operating and how confident they are in their ability – and their suppliers ability – to navigate the very complex waters of reshoring.

All decisions have broad and specific implications. Reshoring may be an example of a decision with sunny broad implications, but very different consequences for the specific individuals on the ground – whether employees or hired workers.

New Year’s Resolution: Don’t get trapped in an office for days by 80 angry workers.

by Kelly Barner

(Source: https://procureinsights.wordpress.com/2015/01/12/procurements-role-in-the-reshoring-trend-by-kelly-barner/)