All over the world, heading offshore to outsource production has become so commonplace that it is now accepted as the norm. Offshoring does indeed make sense for many companies, especially those that want to establish a global footprint. Too many, however, outsource production for the wrong reasons.
Lured by the promise of cheaper labor, they are blind to the tactical costs of manufacturing overseas. While they may save money on unskilled labor and by achieving economies of scale, they ultimately will pay more because of longer lead times, increased inventories, the need for more management resources for planning and logistics, and constraints on their ability to respond quickly to changing demand.
Despite these and other hidden costs, offshore manufacturing has become a fact of life. Now the challenge for many companies is to manage the resulting global supply chain effectively. They can accomplish this by conducting thorough research, developing a logical strategy, and managing proactively to prevent problems. Effective management also requires establishing open communication with suppliers about expectations, especially when all requirements are contractual.
If you are considering offshoring some or all of your manufacturing, the following will provide a basic guide to the potential problems, business considerations, and success strategies associated with this increasingly common practice.
Know the pain points
No matter what business you're in, you will find that offshoring brings many pain points to the fore. When outsourcing some or all of your operations, you will have to deal with longer lead times. Their length will be determined by the complexity, variation, and shipping times for the parts or products involved. Longer lead times will also require you to forecast inventory needs more accurately.
In addition, you'll confront cultural and time-zone differences that can make communication difficult and can engender misunderstandings. You'll need to address issues of product integrity, quality, and variation. Sometimes you may encounter impractical shipping options. And you may have limited or no visibility into the overseas operation, making it difficult to identify a problem before it's too late to fix it.
The most pressing of these problems are lead times and quality issues. There's no getting around the fact that transit times, not to mention often-forgotten factors like holidays, vacations, and the like in the manufacturing country, will greatly increase a product's lead time. Because every company wants to have sufficient products on hand when its customers want them, you will likely have to stockpile inventory—and that will incur enormous costs in capital and warehousing. Accurate, effective forecasting will help, but even the best forecasts won't remain accurate when they must be firmed up two to six months in advance of production.
Additional pressure to stockpile inventory can result when sourcing a single item from an overseas manufacturer that insists on shipping full ocean containers. This requirement forces you to buy more of a product than is needed at a particular time, which adds inventory, transportation, and storage costs. Moreover, many Asian manufacturers require cash up front for their services. All of these factors can force your company to make larger capital investments than intended.
Another critical issue is maintaining product quality and integrity. A number of incidents involving manufacturers in Asia that produced substandard or unsafe products have made the news recently. Involvement in such a scandal can cost you—not only in lost profits but also in brand loyalty. It's hard to gain back trust once it's been lost.
Quality issues often are closely tied to a lack of visibility into offshore manufacturing operations. If you choose to manufacture overseas, you must be willing and able to closely oversee those operations (or hire someone trustworthy to do so) to ensure that quality standards are being met.
Given all the potential problems associated with offshore manufacturing, you might wonder why anyone would want to do it. The reason is that, at least for some, the benefits outweigh the pitfalls. To make sure that is indeed the case—in other words, that it is not just a matter of perception and that the benefits actually do outweigh the negatives—you'll need to do extensive, thorough, and accurate research before going ahead.
Research first
It goes without saying that nobody should jump right into something as complex and fraught with pitfalls as offshore manufacturing without first doing extensive, careful research.
One mistake companies often make is focusing on the lowest purchase price per item instead of considering the total landed cost of sourcing from offshore suppliers. Total landed cost includes such cost factors as transportation, port charges, duties and taxes, insurance, and material. It also includes internal, "soft" costs, such as those for capital tied up in excess inventory and storage and for often-overlooked considerations like the cost of handling inefficiently loaded containers.
Not all products are suited to offshoring. The ones that are most suitable may be those that have long lifecycles, are simple and cheap, do not undergo frequent design changes, will be sold or used in the region where they are produced, and/or require significant manual labor inputs.
There are several reasons why these types of products make good candidates for offshore manufacturing. For one thing, when products have longer lifecycles, there is less risk associated with carrying enough inventory to compensate for long lead times. For another, it may be more cost effective to outsource items that are cheap enough that quality isn't a concern; that is, if it's less costly to scrap bad parts overseas than it would be to manufacture in the home country to the quality standards required to avoid scrapping bad parts.
Other strong candidates are parts or products that will be sold near the site of manufacture or will be shipped to another offshore location for assembly. Manufacturing products in the region where they will be sold results in shorter lead times, lower inventories, improved customer service, and higher profits. Moreover, buying a component offshore for use in an assembly that is produced in the same region improves lead times and flexibility while reducing working-capital requirements.
Finally, when it comes to labor, the value-added content can be as important as the cost of wages and benefits. When a product with low value-added content is manufactured in a process that eliminates waste, it may actually be cheaper to produce it locally rather than offshore.
After determining which products are suitable for outsourcing, it's time to consider where to produce them. Not all offshore locations are created equal, and—as noted earlier—cheap labor shouldn't be the only deciding factor. While investigating various locales, consider not only labor costs but also managerial costs (which may not be as inexpensive as many people assume); protections provided for intellectual property; the availability of utilities and other infrastructure, including associated trade-offs (for example, good roads versus poor roads); and local culture— especially as it pertains to business and legal practices.
All of these considerations will come into play in another important step: creating a "value-chain map" that captures all of the costs and operational data (such as cycle times, inventory, and so forth) associated with your product's journey from the offshore facility to its final destination. Visualizing each point in the value stream, from order to delivery, makes it possible to predict where problems might occur—and to take steps to prevent them from happening.
Prevent problems
Once you've completed that "homework" and (with the aid of a value-chain map) have developed plans to address every identifiable contingency, you can take steps to help ensure the success of your offshoring venture.
Perhaps the best advice is to do everything possible to avoid problems in the first place! And that's essentially what the following suggestions are all about. They may seem quite basic, but these preventive measures are often overlooked when companies focus simply on cheap labor.
Perform comprehensive assessments of offshore suppliers to ensure that they are capable of meeting your expectations. Look at areas such as manufacturing capabilities (such as productivity and quality) and capacities, quality systems, technology and technical expertise, ability to comply with specifications, cost structure, and financial stability.
Lay out terms for agreements and partnerships in contractual form. Specify exactly what you need with respect to quality, cost, delivery, and service.
Communicate regularly and clearly with offshore suppliers. Don't assume that an offshore manufacturer understands what you require. Put expectations in clear, unambiguous writing, especially with respect to quality, and be prepared to follow up.
Use key metrics and a scorecard system to understand if product is flowing as planned. Establishing a system for tracking and measuring performance— much like those you use on the home-based manufacturing floor—will allow you to assess offshore performance at a glance and will provide early warning when product flow is getting off-track.
Visit offshore manufacturing sites regularly to find and solve problems before they become big enough to affect your company's ability to profitably meet its customers' requirements.
Weigh the facts
Offshoring can be a logical and cost-effective way to improve your company's competitiveness, but as we've seen, there's more to it than simply choosing a manufacturing site or finding a contract manufacturer overseas.
Ensuring success requires learning and weighing all of the facts before contracting with an offshore supplier. Map the value chain, understand your total landed costs, visit the potential supplier, and thoroughly assess its capabilities to be certain that the right partner has been selected. Once you've chosen that partner, document all of your requirements regarding order volumes, product specifications, and operational details in the contract. And finally, monitor offshore suppliers no differently than you would your own manufacturing operations.
Going offshore can improve your competitiveness and open up new markets; just remember to make that decision based on facts that take all costs into account. And once you've decided to manufacture overseas, stay vigilant and continue to carefully monitor and manage your supplier.
The venture-backed fleet telematics technology provider Platform Science will acquire a suite of “global transportation telematics business units” from supply chain technology provider Trimble Inc., the firms said Sunday.
Trimble's other core transportation business units — Enterprise, Maps, Vusion and Transporeon — are not included in the proposed transaction and will remain part of Trimble's Transportation & Logistics segment, with a continued focus on priority growth areas following completion of the proposed transaction.
Terms of the deal were not disclosed but as part of this agreement, Colorado-based Trimble will become a shareholder in Platform Science's expanded business. Specifically, Trimble will have a 32.5% stake in the newly expanded global Platform Science business and will receive a Platform Science board seat. The company joins C.R. England, Cummins, Daimler Truck, PACCAR, Prologis, RyderVentures, and Schneider as a key strategic investor in Platform Science along with financial investors 8VC, Activant Capital, BDT & MSD Partners, Softbank, and NewRoad Capital Partners.
According to San Diego-based Platform Science, the proposed transaction aims to enhance driver experience, fleet safety, efficiency, and compliance by combining two cutting-edge in-cab commercial vehicle ecosystems, which will give customers access to more applications and offerings.
From Trimble customers’ point of view, they will continue to enjoy the benefits of their Trimble solutions, with the added flexibility of the Virtual Vehicle platform from Platform Science. That means Virtual Vehicle-enabled fleets will receive access to the Virtual Vehicle Marketplace, offering hundreds of new and expanded applications, software, and solution providers focused on innovating and improving drivers' quality of life and fleet performance.
Meanwhile, Platform Science customers will enjoy the added choice of Trimble's remaining portfolio of transportation solutions which will be available on the Virtual Vehicle platform, the partners said.
"We believe combining our global transportation telematics portfolio with Platform Science's will further advance fleet mobility and provide our customers with a broader portfolio of solutions to solve industry problems," Rob Painter, president and CEO of Trimble, said in a release. "Increased collaboration between the new Platform Science business and Trimble's remaining transportation businesses will enhance our ability to provide positive outcomes for our global customers of commercial mapping, transportation management, freight procurement, and visibility solutions. This deal will result in significant synergies along with tremendous opportunities for employees to continue to grow in a more-competitive business."
The acquisition comes just five months after Platform Science raised $125 million in growth capital from some of the biggest names in freight trucking, saying the money would help accelerate innovation in the commercial transportation sector.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
Economic activity in the logistics industry expanded in August, though growth slowed slightly from July, according to the most recent Logistics Manager’s Index report (LMI), released this week.
The August LMI registered 56.4, down from July’s reading of 56.6 but consistent with readings over the past four months. The August reading represents nine straight months of growth across the logistics industry.
The LMI is a monthly gauge of economic activity across warehousing, transportation, and logistics markets. An LMI above 50 indicates expansion, and a reading below 50 indicates contraction.
Inventory levels saw a marked change in August, increasing more than six points compared to July and breaking a three-month streak of contraction. The LMI researchers said this suggests that after running inventories down, companies are now building them back up in anticipation of fourth-quarter demand. It also represents a return to more typical growth patterns following the accelerated demand for logistics services during the Covid-19 pandemic and the lows of the recent freight recession.
“This suggests a return to traditional patterns of seasonality that we have not seen since pre-COVID,” the researchers wrote in the monthly LMI report, published Tuesday, adding that the buildup is somewhat tempered by increases in warehousing capacity and transportation capacity.
The LMI report is based on a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
That hiring surge marks a significant jump in relation to the company’s nearly 17,000 current employees across North America, adding 21% more workers.
That increase is necessary because U.S. holiday sales in 2023 increased 3.9% year-over-year as consumer spending grew even amidst uncertain economic times and trends like inflation and consumer price sensitivity. Looking at the coming peak, a similar pattern is projected for this year, with shoppers forecasted to drive a 4.8% increase in holiday retail sales for 2024, Geodis said, citing data from Emarketer.
To attract the extra workforce, Geodis says it will offer competitive wages, peak premium pay incentives, peak and referral bonuses, an expedited payment option, and flexible schedules. And it’s using an AI-powered chatbot named Sophie to serve as a virtual recruiting assistant.
“We acknowledge the immense responsibility we have to our customers to deliver exceptional service every day, and this is especially true during peak season,” Anthony Jordan, GEODIS in Americas Executive Vice President and Chief Operating Officer, said in a release. “Because peak season is the most business-critical sales period of the year for many of our retail clients, expanding our workforce is vital to ensure we have a flexible, dynamic team that can handle anticipated surges in demand.”