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Bringin’ it all back home

As conditions change in some emerging markets, companies that once outsourced some of their manufacturing and distribution processes are thinking about bringing them back in-house. We look at the five key considerations a company should explore before pulling the trigger on insourcing their outsourced processes.
By Rand Stille and Sriram Narayanan
Rand Stille is vice president, Universal Logistics Holdings. He can be reached at .(JavaScript must be enabled to view this email address). For more information, visit goutsi.com. Sriram Narayanan is an associate professor in the department of supply chain management at the Eli Broad College of Business at Michigan State University. He can be reached at .(JavaScript must be enabled to view this email address). For more information, visit broad.msu.edu.
July 5, 2016

Outsourcing and globalization: For the better part of this century, these strategic initiatives have gone hand-in-glove at many organizations. Whether in pursuit of lower costs, simplifying operations or just trying to keep pace with the global expansion of their customers, companies have sought to outsource nonessential operations with an emphasis on more global supply chains. Many of these supply chains were established at a feverish pace as the global outsourcing trend was met with the open arms of developing countries eager to participate. Today, however, some of these supply chains have been operational for years. The low-hanging fruit has been picked and the dust has long settled from the intrepid efforts of the global outsourcing “gold rush.” Additionally the pace of economic growth of emerging economies has slowed, which may present new risks and financial considerations.

All of that is leading some companies to reassess their operations and supply chains with more global experience and a greater sense of scrutiny. While many of the supply chains established during the globalization gold rush still provide a sustainable strategic advantage, several other outsourcing decisions may no longer represent the best value option. Accordingly, organizations need to constantly reassess their strategic options and ask where it makes sense to bring some activities back in-house. This does not necessarily mean re-shoring: While some activities may be brought back to a company’s home turf, insourcing may also involve using in-house personnel to execute tasks in an existing foreign market that are currently outsourced. In this regard, insourcing is the new challenge in today’s supply chains.

Insourcing efforts are often justified on several grounds; these include reducing costs, improving the value delivered to customers and building organizational capabilities. However, insourcing activities are not risk free. Quite to the contrary, they involve critical challenges in transitioning work and carry a considerable risk of failure.

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Outsourcing and globalization: For the better part of this century, these strategic initiatives have gone hand-in-glove at many organizations. Whether in pursuit of lower costs, simplifying operations or just trying to keep pace with the global expansion of their customers, companies have sought to outsource nonessential operations with an emphasis on more global supply chains. Many of these supply chains were established at a feverish pace as the global outsourcing trend was met with the open arms of developing countries eager to participate. Today, however, some of these supply chains have been operational for years. The low-hanging fruit has been picked and the dust has long settled from the intrepid efforts of the global outsourcing “gold rush.” Additionally the pace of economic growth of emerging economies has slowed, which may present new risks and financial considerations.

All of that is leading some companies to reassess their operations and supply chains with more global experience and a greater sense of scrutiny. While many of the supply chains established during the globalization gold rush still provide a sustainable strategic advantage, several other outsourcing decisions may no longer represent the best value option. Accordingly, organizations need to constantly reassess their strategic options and ask where it makes sense to bring some activities back in-house. This does not necessarily mean re-shoring: While some activities may be brought back to a company’s home turf, insourcing may also involve using in-house personnel to execute tasks in an existing foreign market that are currently outsourced. In this regard, insourcing is the new challenge in today’s supply chains.

Insourcing efforts are often justified on several grounds; these include reducing costs, improving the value delivered to customers and building organizational capabilities. However, insourcing activities are not risk free. Quite to the contrary, they involve critical challenges in transitioning work and carry a considerable risk of failure.

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