Traditional approaches to international sourcing are being called into question with shifting consumer tastes, trade agreements, and politics. However, global trade is not going away and the sourcing strategies and tactics required to bring products to market are rapidly evolving.
Macro tailwinds of large global companies, like Wal-Mart committing to buy more US made goods, coupled with the smaller localized trends, like the Makers Movement spreading through cities across the country – demonstrated by companies like Shinola building products in Detroit, are accelerating companies’ eagerness to source more in the US.
Manufacturers need to embrace these refined sourcing strategies and adapt to new industry norms to ensure a reliable supply chain that meets both customer and company goals. Regardless of their drivers, missions, or cost savings, companies who transition their buy to the US should follow a strategic, repeatable approach to generate the best results when sourcing domestically.
Shifting political landscapes and global trade agreements, along with evolving consumer tastes, are forcing companies to reassess their spend. Events such as the BREXIT vote, US withdrawal from TPP, and US renegotiation of NAFTA have manufacturers reevaluating their previously dependable global sourcing strategies of the last few decades.
Distant sources now seem riskier in comparison to high-cost local sources due to increased lead times and the inventory levels needed to account for supply risk. Conventional approaches to sourcing in low-cost countries – China, Indonesia, and Malaysia for example, sourcing 100% of the buy with strategic suppliers, or sourcing globally in free trade agreement blocks (in the name of cost reduction) are no longer simple, go-to strategies.
Traditional supply chain disruption risks, whether geopolitical, economic, or resulting from a natural disaster, paired with newer headwinds, are pushing sourcing higher up organizations’ strategic priorities. Thus, companies are starting to explore the idea of sourcing more in the US and reallocating their oversees spend.
What is Onshoring?
Onshoring is the transitioning of purchasing services, raw materials, tooling, components, and finished products from suppliers overseas to suppliers in the US. The rationale for transitioning supply varies widely but often includes a combination of the following:
• Buy cost
• Labor cost
• Transportation cost
• Inventory cost
• Product lead times
• Product timelines
• Customer preferences
• Company mission
• Supply risk
• Currency fluctuation
Regardless of the root cause of a company’s desire to procure more parts and services in the US, one thing is certain: the pace of competition and market volatility we have seen in recent history is not expected to let up anytime soon.
As a result, a company’s ability to execute strategic sourcing in the US will be a key enabler for them to complete in a volatile global economy. Below are five steps to follow as you explore, transition, and source in the US.
5 Steps for US Sourcing Success
Step 1) Know Your “Why”
Understand the “why”, the reasoning and objectives for onshoring. Document the distinct buy criteria that is most important to your organization and triggering the need to explore onshoring. Rank criteria such as cost reduction, customer preferences, company mission, etc. on a scale of 1-10. Knowing your why up front is key to preventing scope creep and provides a guiding beacon throughout the strategic sourcing process.
Step 2) Define Success
Define success by outlining current state metrics, desired future state metrics, and business case, including payback period and return on investment. There are several common metrics that companies utilize when working to source more in the US including: spend by percentage, product time to market compression (in days), and cost savings. Knowing what success looks like ahead of kicking off a sourcing exercise will increase the probability of a favorable outcome.
Step 3) Select Tools
Selecting specific analytics tools – 80/20, ABC Analysis, etc. – before analyzing spend is crucial to success. A True Cost Sourcing Model should be utilized to ensure that all potential cost savings information is properly accounted for. Using a data-driven process to shape buy transitioning and sourcing allows your team to make more accurate and repeatable decisions.
Step 4) Analyze Buy
Map spend by category, raw material, manufacturing process, supplier type, region, and cost to identify specific buy groups to transition. Create a Plan for Every Part (PFEP) for complex products with many sourced components to ensure all components are properly accounted for during transitions. Moving beyond the “US vs. low-cost country” stereotype to creatively identify specific needs that suppliers can be located and developed for.
Step 5) Determine Strategy
There are four main strategies to select from when designing your onshoring framework: multisource, source future buy, resource, and supplier development. Every strategy has different pros and cons but typically a mix of strategies are needed to effectively and efficiently transition complex product buys. Choosing the right strategy for each need is the art of procurement that, when paired with an experienced team, will lead to superior onshoring execution results.
The global economy continues to surprise us and risk drivers have expanded beyond the traditional strategic sourcing norms, complicating the ways in which we have grown accustom to doing business. One thing has become clear though: plan for many businesses to be reevaluated (at minimum) and overhauled (at maximum) to reflect the new market normal. Every business has a unique set of factors that correlate into ideal processes for bringing products to market, so understanding your company’s “why” will help to crystalize your ideal sourcing strategy.
Advances in manufacturing, materials, and business models have leveled the sourcing playing field domestically and globally, so focusing on solving the supply need first and adding suppliers to the solution will open new possibilities. Onshoring part or all your buy could be the key to de-risking short-term supply while unlocking future opportunities for growth.