SUPPLY CHAIN MINDED

The opportunities and challenges of global sourcing

The opportunities and challenges of global sourcing

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John P. Collins and Eric P. Jack | APICS |  November/December 2012

A globally extended supply chain offers tremendous advantages and tremendous challenges. There are vast opportunities to leverage comparative economic gains that can both reduce manufacturing cost and enable a company to reach a wider variety of potential customers. At the same time, however, the complexities of customer relationship management (CRM) and supplier relationship management (SRM)—among others—pose serious challenges. Following are some examples of the good and the bad faced by two major aircraft manufacturers, Airbus and Boeing, as they navigated their globally extended supply chains.

Both Airbus and Boeing attempted to maximize the CRM- and SRM-related advantages that can be gained from global sourcing. These companies simultaneously attempted a massive supply chain integration and a technological shift that relied on the technical capabilities of their suppliers. The combination of new design, new materials, and more fuel-efficient engines added serious layers of complexity to the supply chain integration experience. Yet, as both companies enter the production line phase, a more stable supply chain flow is expected. In fact, a recent Wall Street Journal article highlighted Boeing’s focus on increasing production to between 35 and 42 Dreamliners a year versus the 13 delivered by that point in August 2012.Unfortunately, the road to this relative success was plagued with enormous supply chain management challenges. Boeing’s ambitious supply chain integration strategy cost the company billions in cost overruns—over the original $10 billion budget—and a four-year holdup in bringing the 787 across the finish line for its first delivery. Airbus had similar delays and cost overruns in its quest to compete with the A350. These overruns and the resultant customer dissatisfaction may have been major factors in Airbus’s opening a plant in the United States to manufacture the smaller A320, a highly popular model that the business hopes will soften the burden brought on by the new A350. Both companies likely are rethinking their supply chain strategies, shifting toward a middle ground between outsourcing and the more traditional centralized approach.Given the apparent lessons learned by Airbus and Boeing, should supply chain managers be waving the white flag with regard to global sourcing? Or do these situations imply something else, as supply chain integration inevitably becomes more sophisticated in order to respond to heightened customer expectations? At one time, a manufacturer could say, “Speed, cost, quality: Pick two.” But today, customers want speed, cost, quality, and flexibility. The challenges involved in meeting all four value propositions will require businesspeople to rethink their global supply chain integration strategies.Perhaps we in supply chain and operations management can take a rather simplistic view and summarize the Airbus and Boeing experiences as simply lessons in not biting off more than you can chew. After all, outsourcing has proved to be relatively successful. However, there is a new trend, reshoring, that would indicate that the comparative economic advantages of global sourcing are narrowing; and, consequently, many companies are moving some of the outsourced manufacturing back home.

According to a study by MIT’s Simchi-Levi, one-third of the 108 companies surveyed are considering reshoring. While some respondents reported political pressure to increase US jobs, others recognized reduced transportation costs and the ability to respond to markets faster.

What are the relative SRM and CRM opportunities and challenges involved with global sourcing in your industry? How is your company responding to these opportunities and challenges? We would like to hear from you.

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