Forget business as usual in your sourcing decisions

I’ve used this blog more than once to warn that low-cost labor is not always what it seems from a distance. One of the biggest mistakes an electronics OEM can make is to move manufacturing to some remote region just because labor costs appear low. As I’ve stated before, this is not always the best thing to do.

Now, with five years of data collected as part of my Outsourcing Navigator Series, I have an analysis to underpin that argument. I’ll present my analysis, and its implications for sourcing decisions, at next week’s Quarterly Forum. If you’re not attending, we’ll post more of this material on the Web site after the Forum – watch this space.

Just to tease you a bit, here are some general conclusions, based on my data:

Labor costs in all geographies are going up; while lower purchase price is attractive it is not the only price that’s paid; costs above purchase price increase as the supply solution becomes progressively remote; there’s a tipping-point between the capabilities of a supply solution and the requirements of an OEM which — if reached — results in a catastrophic failure. Also, no matter what your personal beliefs are about global climate change, corporate social responsibility or today’s geopolitical situation, the probability of business continuing as usual is zero.

In many cases, outsourcing will ultimately shift back to same-hemisphere solutions, a trend that’s inevitable and beneficial, not only to the planet, but also to our industry and its regional communities. Cross-hemispheric solutions are not going to be tolerated as the standard course-of-business in the future (if for no other reason than the price and consequences of petroleum-based fuels).

For more facts and figures to bolster these arguments, watch this space – or attend next week’s Quaterly Forum. There’s still time to register.

Posted by Charlie Barnhart, April 17th, 2008