Sourcing is no longer about trying to get it cheaper, whatever "it" is. Companies continue to leverage savings in various functions and processes in low-cost regions in the world, where they can be conducted at lower cost, either by third parties or by their own efforts. And they are doing so aggressively.

Supply is driving the significant growth of sourcing in low-cost regions, and it seems safe to assume that it will for the foreseeable future. More suppliers in more locations are placing an increasingly complex set of choices before executives who are leading their companies into the offshore fray. Yet things are just as dynamic on the demand side, according to Chicago-based management consulting firm A.T. Kearney.

"Multinationals based in France, Germany, Spain, Japan, Canada, Australia and elsewhere have recently begun adopting offshoring so they can compete with other multinationals based out of the United States and the United Kingdom — the traditional offshore service buyers," says A.T. Kearney's "Execution Is Everything: The Keys to Offshore Success" report earlier this year.

Today's globalized business means leveraging various regions of the world for potential in several areas. This includes "establishing a presence in a global market for growth, resource access and cost savings," notes J. Paul Dittman, Ph.D., University of Tennessee, in World Trade magazine. Determining which regions to access for any particular purpose, however, remains a significant challenge.

Different locations, countries and regions have their own strengths and weaknesses, but even more important, "regional positions shift over time," Arnold Maltz, Arizona State University, also writes in World Trade.

Of the major supply chain trends he sees as having the most significant impact, Maltz says "tracking and responding to the relative positions of low-cost regions will be an ongoing theme for global supply chain managers." The competitive source of products or materials constantly shifts — whether Asia, the U.S., Europe or elsewhere. "Add in the importance of market proximity, whether to the U. S., Europe or emerging urban markets in India and China, and it becomes even more necessary to understand how an area's character fits with a firm's global supply chain strategies," Maltz adds.

As supply chain managers now operate the physical movements globally, they face inter-country and intra-country challenges.

Of course, companies making outsourcing decisions must balance concerns about cost and quality, too.

"You're not going to go for the lowest-priced market if that's going to result in really burdensome extra costs in terms of customer dissatisfaction or extra management time," Martin Walker, senior director of the Global Business Policy Council, tells Financial Week.

As such, researchers and managers must cooperate so everyone in the firm has the tools and insights necessary to support continued economic success in a global value chain of borders.

Once you determine the right low-cost sourcing location for your business, however, you're faced with even more challenges, such as managing risks inherent to global sourcing.

Managing Global Sourcing Risks
Many companies pursuing an outsourcing strategy find it difficult to consider risk because they are blinded by the huge savings potential. Yet the risks associated with global outsourcing are very real, and include the following: "catastrophic delay in delivery due to force majeure or even terrorism; quality and damage problems hidden by a long supply line; highly inaccurate forecasts over a long supply line; currency swings; and intellectual property issues," Dittman tells World Trade magazine. (See: How to Manage Risk)

Although there are no clear trends that the aforementioned risks are causing an outsourcing backlash, Dittman does go on to call out the following:

Once risks are identified, we see a variety of strategies that some leading companies are using to manage risk. These risk mitigation strategies are selectively applied depending on the impact and probability of each risk. Evidence is building that those firms who apply a rigorous risk management methodology are much more likely to see the promised benefits from a global outsourcing strategy, as well as realize the payback from their overarching globalization strategy.

Clearly, we will be seeing more consideration put into the adaptive process of operating in low-cost regions. What do you think: Is the promised land for sourcing found offshore?

Resources

10 Trends That Will Change Your Supply Chain
by Arnold Maltz, J. Paul Dittmann, Gail Dutton
World Trade, Jan. 1, 2007

"Execution Is Everything: The Keys to Offshore Success
A.T. Kearney, March 15, 2007

Cost Savings Shrink for Offshore Outposts
by Susan Kelly
Financial Week, March 27, 2007