Twenty years ago, during the U.S. presidential election debates, Ross Perot despaired of the “giant sucking sound” of large numbers of “American jobs” being drawn into Mexico to the detriment of the American economy. In time, China replaced Mexico as the recipient of the employment flows, while handwringing and finger-pointing continued unabated.
In more recent times, China has begun to allow their currency to appreciate; Chinese wage inflation combined with American wage stagnation has begun to erode the size of the wage differential; desires for supply chain responsiveness, reliability, and resilience have begun to balance the trade-off with cost; and some “Chinese jobs” are now moving to places like Bangladesh and Vietnam.
One firm that has experienced all of these dynamics firsthand is Li & Fung, the 106-year-old Hong Kong-based supply chain orchestration company that provides product design services, logistics and distribution services, and supply chain design and management services for companies around the globe. Li & Fung made their mark primarily by connecting Asian apparel factories and suppliers with American and European apparel retailers and brands, but today, they design and manage the end-to-end chains in a world encapsulated by the phrase “Source Anywhere, Sell Anywhere.”
Like Apple, Li & Fung employs an army of designers in the U.S. and engages a fleet of factories in China, but that observation alone renders a far too simplistic picture to capture the complexity of the networks the company has built. Li & Fung has developed a core team of hundreds of managers, experts, and leaders, representing a multitude of nationalities, each of whom has run businesses and served clients in multiple countries and therefore has a depth of understanding of two or more countries across their global network. The aggregation of these individual capabilities, combined with the broad geographic spread of their employees, suppliers, and customers, renders moot the question of onshoring of offshoring. There is only sourcing — of designs, brands, manufacturing, logistics, and distribution — in a multi-plateaued, if not flat, commercial world.
Although certainly not extinct, the low-bid-wins mentality, if it ever dominated sourcing, seems to be on the wane. From the labor abuses exposed in Nike's supply chain to the suicides at Foxconn's factories for iPhones, the big names at the end of the chain have come to realize that lowest price can mean highest risk — and highest risk can mean high total costs. Furthermore, an absence of trust and commitment stifles supply chain innovation and continuous improvement.
For companies like Li & Fung, the job of sourcing includes improving the economics of their clients' businesses and protecting their clients from public relations disasters due to supplier malfeasance. Ultimately, therefore, Li & Fung's job will increasingly include helping to improve the economics of their suppliers' businesses as well. Such requirements only increase the value of a management front line that knows deeply both the cultures and contexts from which it develops sourcing relationships as well as those to which it provides product and services. In order to be global, you have to be local.
So what's the next big trend — onshoring, offshoring, or reshoring? In my opinion, it is “intelli-sourcing” — the company with the most intelligent sourcing team wins. And what does it take to be good at intelli-sourcing? Surely the combination of local knowledge and global networks that we see in Li & Fung is one component of intelligent sourcing, but another is the ability to forge relationships in the supply chain that enable collaborative cost reduction even when exchange rates push sourcing costs in the wrong direction.
Our tightly connected world and increasingly transparent supply chains make it impossible to cover up problems due to inadequate supplier oversight. In that sense, the rapid switching of suppliers in search of ever lower costs has become a higher risk approach to supply chain management. Perhaps the new trend will be to optimize the sourcing footprint for quality, service, and innovation, with a little less emphasis on saving a few pennies to risk many dollars.