The June 26th issue of BusinessWeek has a "special advertising section" entitled "Outsourcing Round Table". Perhaps Bill’s relentless pounding on the subject is starting to have an effect and the companies involved with the "round table" feel a need to respond. Or else it is simply a grotesquely one-sided self-promotion exercise. At best it is an attempt at fake news, intersperced with full-page ads for some of the participants, and headed with a tiny and almost unnoticeable "special advertising section" disclaimer.
The moderator is Mark Toon, CEO of EquaTerra, and the panelists include Sean Kenny of EDS, Daniel Mummery of Latham & Watkins, Christian Baader of SAP, and Raj Asava of Satyam Computer. A guy from an "outsourcing enabler", an attorney, a guy from a computer company that creates convoluted "planning" systems (sometimes resulting in millions of extra chocolate bars!), and a "VP of Strategic Deals". Yep, that’s really a well-rounded round table. More like everyone sitting on one side of a table looking west while the sun sets… but that’s too many metaphors to deal with at once.
There are actually some good tidbits, but nothing we didn’t already know. A survey of 250 execs at $1B+ companies showed that 60% outsource for cost reasons, with lesser numbers for access to new technologies and to deliver services globally. Companies that outsourced to achieve process improvement are more satisfied than those that chased reduced costs.
The participants then spend the rest of the round table advertisement basically pushing the glories of outsourcing. Mr. Baader of SAP, to his credit, does point out some of the cost downsides… specifically the often-overlooked complexity that the original company has to deal with and potential costs from changes in volume or business activity. The others occassionally point out "expectation" and cultural issues.
All of that can apparently be solved through technology and robust contracts, after which the cash floodgates open.
But what happens when demand can turn on a dime, such as after 9/11, or a design defect is found after a freighter has been loaded with a few hundred containers of product? What happens when a country’s new leadership decides to nationalize some industries and basically dissolve the investment a company has made, such as is happening today in Venezuela and Bolivia, or a previously unknown competitor emerges when your freighter is about a week away from Long Beach? What is the true cost of that outsourced supply chain in terms of cash tied up in inventory, complexity, longer lead times, and the impact of quality defects?
Those of you that attended the 2004 Association for Manufactiong Excellence Annual Conference in Cincinnati saw a far more interesting and balanced debate on the subject, moderated by Larry King. There was a proponent of China outsourcing, but also a passionate owner of a small manufacturing company in the U.S. and several lean manufacturing experts. Pretty eye-opening.
I wonder how many excess chocolate bars could fit on a container ship…