Art van Bodegraven was, among other roles, chief design officer for the DES Leadership Academy. He passed away on June 18, 2017. He will be greatly missed.
Well, the chickens are continuing to come home to roost. Or maybe in this 21st century of globalized supply chains, the Peking Ducks are coming home. (OK, we know it's "Beijing" today, but the menu at our favorite takeaway joint still says "Peking.")
Many of the pioneers who boldly sent both product and component manufacturing off to China have moved onward and upward, pocketed handsome bonuses, and are apparently immune from prosecution. But the cost-slashing offshoring that has been a given for CFOs for decades now has been exposed as a risky bet, with more downsides than anyone imagined at the outset.
It's not just China; it's the search for the low-cost labor source, wherever it might be, that has created some pretty shaky—and no longer slam-dunk lowest-cost-supply chains.
UNINTENDED CONSEQUENCES
When it comes to the unintended consequences of offshoring, the bad news comes in several flavors, all unappealing. Here are a few of the possibilities:
One is the effect on inventories, which continue to be under pressure for reduction. Simply having a physically longer supply chain means more inventory to cover the replenishment cycle. Or generates significant risk in service performance, if one tries to hold stock to prior levels. Or both, if the equation isn't got quite right.
Add to that the safety stock needed to accommodate lowered reliability and increased variability in delivery performance. More of the same impacts. Put slow steaming into the mix, and you increase the upward pressure on inventories. Throw in the seasonal effects of monsoon/typhoon periods in Asia. It's enough to make one start talking with a clergyman, or with oneself.
Did we mention the consequences of work stoppages at arrival ports? Or challenges in finding transport capacity to move stocks from point of arrival to distribution destinations? Both require on-hand inventory stocks to make disruptions invisible to customers—or both can drive brand-killing customer delivery failures.
Then, there is the elephant in the room of transportation costs. In the early days, it didn't matter much. Depending on where manufacturing had been previously located, offshored product typically incurred the additional cost of ocean transport, then over-the-road miles greater than when domestically produced. West-to-east container transport was significantly more expensive than the reverse. But fuel was cheap.
Surprise! Somebody changed the equation. Oil went up, diesel went up, gasoline went up—a lot. Then they went down—a little. Then up. This will continue for a long time with the overall trend being significantly up (unless everybody converts to natural gas, and soon). The offshoring command decision is getting shaky in this scenario.
Whoops! The big marine cargo lines opt for slow steaming, ostensibly because of the cost of fuel. But this adds more time to deliveries, requiring more inventory. And rail transport from the West Coast has a hard time promising narrow-window time-specific delivery, adding variability to chain performance and seeming to require even more safety stock.
At least we could still enjoy cheap labor. Umm, not really. As less-developed economies begin to prosper, a middle class begins to emerge and wages rise, adding fuel to the growth of local consumer-based economies. And more prosperity, with further wage increases. And so on.
At least one qualified expert has projected that the combined effects of wage increases in China and transport costs will make the competitive advantage of offshoring to China trivial, if not invisible. China, in fact, has been looking for low-cost labor markets as candidates for moving some of its production out of the country. Some operations have been brought back to the United States, and some call centers have come home for variety of reasons, not least rising local wages.
Not that we in the United States have not been on a continuing search for low-cost labor all the while. Apparel, particularly, is manufactured in dozens of countries in Asia, Central America, and the Caribbean Basin. Vietnam is a hotbed recipient of offshored manufacturing. And so on.
But all of these developments merely postpone the inevitable of local growth and prosperity, and the perceived need to find the new low-cost labor source, no matter how far off the edge of the Earth it may be. The traditional offshoring equation, given all this, has become beyond shaky and may be nearing unsustainability.
AND THERE'S MORE ...
That three-legged stool ought to be enough to scare any executive straight, but just in case, here are a few more potential perils of offshoring:
Too many spoons in the soup. The globalized supply chain can have a couple of dozen touch points, considerably more than its domestic predecessor. That's a significant increase in opportunities for things to go wrong. Right, Professor Murphy?
Quality degradation. Labor cost savings might simply not be worth it if quality is not as high as it should be.
Theft. Not necessarily what we laughingly call "shrink," but the appropriation of intellectual property, which does not seem to be either a crime or a sin in some cultures. So, how important are your designs, your patents, your points of product differentiation? How much or little damage does it do to your brand to have knock-offs produced and sold locally? Or your proprietary techniques, features, technologies, and designs made available to your competitors (who are also dealing with your offshore producers)?
Diminished control. Face it. You no longer have, in many cases, much direct contact with and influence over the individuals who make your goods (nor with their management).
Fines or jail time. Or rotten publicity and global disapprobation. When your offshore supplier (or its supplier, service provider, or other business partner) does something that is illegal under U.S. law, or international law, or engages in distributing baksheesh, or operates inhumane sweatshops, or brutalizes child labor, you are going to take major heat at best, possibly face major fines and penalties, or ...
How attractive is the Lorelei of offshoring continuing to look? Is low-cost labor still as alluring as a well-performed tango in Buenos Aires' La Boca?
WHERE TO GO FROM HERE
First, realize that the only defensible long-term reason to have a globalized supply chain is that it must be done in a rational and strategic context in support of organizational strategy that balances sourcing, manufacture, and distribution activities serving worldwide markets. Anything less is short-sighted, subject to deterioration, and possibly dangerous.
Second, begin with a clear-eyed assessment of options and alternatives to serve domestic or a selected few out-of-country markets.
Is reshoring at all realistic to consider? Are the requisite skills still resident? Can they be imported or trained? Are any dies needed in good repair? Can they be rebuilt and maintained? Can you commit to the time and investment of reconstructing a distribution network that is driven from a "new" point of product origin? Will you be able to, and are you willing to, acquire temporary talent and outside service providers to plug any gaps? Even with thorough and creative business cases, will the cost/price gap with competitors be small enough to create a value proposition for customers?
Fine point: If the original home base won't work, are there other in-shored locations that might?
Do you have the guts and the financial resources to get through short-term tough times in the interest of realizing long-term good times?
What are the nearshoring alternatives that split the difference between distant offshoring and reshoring, balancing the labor cost, transport costs, and distribution network investment to provide a cost-competitive solution? One (or more) that overcome(s) some of the other downsides of distant offshoring, including quality, productivity, loss of control, international law exposures, and replenishment cycle time length and reliability?
Are there distant offshoring options that overcome, reduce, or mitigate risks of present arrangements? Do they introduce new risks? What are the trade-offs?
Can you collaborate with another company with offshoring/outsourcing solutions that might make your combined network more cost/quality/productivity/reliability attractive—and effective?
There's probably a lot more, but these few points ought to be enough to get you started. As usual, it is never as easy as we'd like to believe.
The third major step is to translate what you found and learned into a plan—actionable, with clear accountabilities, focused on quantified business objectives, practical, with a manageable time frame, supported by advocates, champions, and sponsors.
Look, this is not a mindless, jingoistic pipe dream. It is all about sustained enterprise performance, long-term profitability, practical actions for competitive advantage, and getting outside the box on knee-jerk searches for low-cost labor for its own sake.
Go for it. And good luck. We have a lot at stake in what you decide.
Warehouse automation orders declined by 3% in 2024, according to a February report from market research firm Interact Analysis. The company said the decline was due to economic, political, and market-specific challenges, including persistently high interest rates in many regions and the residual effects of an oversupply of warehouses built during the Covid-19 pandemic.
The research also found that increasing competition from Chinese vendors is expected to drive down prices and slow revenue growth over the report’s forecast period to 2030.
Global macro-economic factors such as high interest rates, political uncertainty around elections, and the Chinese real estate crisis have “significantly impacted sales cycles, slowing the pace of orders,” according to the report.
Despite the decline, analysts said growth is expected to pick up from 2025, which they said they anticipate will mark a year of slow recovery for the sector. Pre-pandemic growth levels are expected to return in 2026, with long-term expansion projected at a compound annual growth rate (CAGR) of 8% between 2024 and 2030.
The analysis also found two market segments that are bucking the trend: durable manufacturing and food & beverage industries continued to spend on automation during the downturn. Warehouse automation revenues in food & beverage, in particular, were bolstered by cold-chain automation, as well as by large-scale projects from consumer-packaged goods (CPG) manufacturers. The sectors registered the highest growth in warehouse automation revenues between 2022 and 2024, with increases of 11% (durable manufacturing) and 10% (food & beverage), according to the research.
The logistics tech provider Körber Supply Chain Software continues to position itself in a fast-changing business landscape, aligning itself today with the digital transformation consulting firm Zero100.
Körber Supply Chain Software—to be formally known as Infios beginning in March—has plenty of funding to make those strategic changes, since the company is a joint venture between its parent company, the German business technology powerhouse Körber AG and KKR, the California-based merger and acquisition specialist.
London-based Zero100 calls itself a membership-based intelligence company connecting, informing, and inspiring the world’s supply chain leaders to accelerate progress on digital supply chain transformation. In January the company gained new financial backing through a “growth investment” from the private equity firm Levine Leichtman Capital Partners. According to Zero100, that new financing will accelerate its tech, data, research, and talent capabilities, further strengthen its team, and enable further product and service innovation on behalf of the company’s customers.
Infios says it is joining that community to access Zero100’s data-driven research insights and advisory, and to integrate innovative sustainability practices and digital tools into its adaptable solutions. Infios’s catalog of technology includes order management, warehousing and fulfillment, and transportation management.
By harnessing advanced technologies such as AI and data analytics and providing businesses with the right level of flexibility and control to evolve and adapt solutions to their needs, Infios says it can help its customers optimize their entire supply chain ecosystem and create a more optimistic outlook.
The Swedish supply chain software company Kodiak Hub is expanding into the U.S. market, backed by a $6 million venture capital boost for its supplier relationship management (SRM) platform.
The Stockholm-based company says its move could help U.S. companies build resilient, sustainable supply chains amid growing pressure from regulatory changes, emerging tariffs, and increasing demands for supply chain transparency.
According to the company, its platform gives procurement teams a 360-degree view of supplier risk, resiliency, and performance, helping them to make smarter decisions faster. Kodiak Hub says its artificial intelligence (AI) based tech has helped users to reduce supplier onboarding times by 80%, improve supplier engagement by 90%, achieve 7-10% cost savings on total spend, and save approximately 10 hours per week by automating certain SRM tasks.
The Swedish venture capital firm Oxx had a similar message when it announced in November that it would back Kodiak Hub with new funding. Oxx says that Kodiak Hub is a better tool for chief procurement officers (CPOs) and strategic sourcing managers than existing software platforms like Excel sheets, enterprise resource planning (ERP) systems, or Procure-to-Pay suites.
“As demand for transparency and fair-trade practices grows, organizations must strengthen their supply chains to protect their reputation, profitability, and long-term trust,” Malin Schmidt, founder & CEO of Kodiak Hub, said in a release. “By embedding AI-driven insights directly into procurement workflows, our platform helps procurement teams anticipate these risks and unlock major opportunities for growth.”
Here's our monthly roundup of some of the charitable works and donations by companies in the material handling and logistics space.
For the sixth consecutive year, dedicated contract carriage and freight management services provider Transervice Logistics Inc. collected books, CDs, DVDs, and magazines for Book Fairies, a nonprofit book donation organization in the New York Tri-State area. Transervice employees broke their own in-house record last year by donating 13 boxes of print and video assets to children in under-resourced communities on Long Island and the five boroughs of New York City.
Logistics real estate investment and development firm Dermody Properties has recognized eight community organizations in markets where it operates with its 2024 Annual Thanksgiving Capstone awards. The organizations, which included food banks and disaster relief agencies, received a combined $85,000 in awards ranging from $5,000 to $25,000.
Prime Inc. truck driver Dee Sova has donated $5,000 to Harmony House, an organization that provides shelter and support services to domestic violence survivors in Springfield, Missouri. The donation follows Sova's selection as the 2024 recipient of the Trucking Cares Foundation's John Lex Premier Achievement Award, which was accompanied by a $5,000 check to be given in her name to a charity of her choice.
Employees of dedicated contract carrier Lily Transportation donated dog food and supplies to a local animal shelter at a holiday event held at the company's Fort Worth, Texas, location. The event, which benefited City of Saginaw (Texas) Animal Services, was coordinated by "Lily Paws," a dedicated committee within Lily Transportation that focuses on improving the lives of shelter dogs nationwide.
Freight transportation conglomerate Averitt has continued its support of military service members by participating in the "10,000 for the Troops" card collection program organized by radio station New Country 96.3 KSCS in Dallas/Fort Worth. In 2024, Averitt associates collected and shipped more than 18,000 holiday cards to troops overseas. Contributions included cards from 17 different Averitt facilities, primarily in Texas, along with 4,000 cards from the company's corporate office in Cookeville, Tennessee.
Electric vehicle (EV) sales have seen slow and steady growth, as the vehicles continue to gain converts among consumers and delivery fleet operators alike. But a consistent frustration for drivers has been pulling up to a charging station only to find that the charger has been intentionally broken or disabled.
To address that threat, the EV charging solution provider ChargePoint has launched two products to combat charger vandalism.
The first is a cut-resistant charging cable that's designed to deter theft. The cable, which incorporates what the manufacturer calls "novel cut-resistant materials," is substantially more difficult for would-be vandals to cut but is still flexible enough for drivers to maneuver comfortably, the California firm said. ChargePoint intends to make its cut-resistant cables available for all of its commercial and fleet charging stations, and, starting in the middle of the year, will license the cable design to other charging station manufacturers as part of an industrywide effort to combat cable theft and vandalism.
The second product, ChargePoint Protect, is an alarm system that detects charging cable tampering in real time and literally sounds the alarm using the charger's existing speakers, screens, and lighting system. It also sends SMS or email messages to ChargePoint customers notifying them that the system's alarm has been triggered.
ChargePoint says it expects these two new solutions, when combined, will benefit charging station owners by reducing station repair costs associated with vandalism and EV drivers by ensuring they can trust charging stations to work when and where they need them.