Tony Jeff: Technology drives supply chains around world

Posted by: Contributing columnist, Clarion-Ledger, Business, July 21, 2016 635833795407067530-Tony-Jeff

Few can argue that technology has made the world smaller. Steamships, then planes and jets cut travel times drastically. Telegraph, then phones, then cellphones and live video streaming cut communications times even more dramatically. At this point, any two people who want to connect from around the world can do so almost immediately.

Since global businesses have always been interested in producing products in the cheapest places possible, it was only natural that instant global communications accelerated the process of outsourcing production of many items all over the world. For many United States manufacturers, that meant very hard choices about whether they wanted to produce things overseas or not — since they knew in most cases their competition would be doing so. Many industries have set up production only to quickly move to another country as Mexico and now even China become more expensive.

There have always been reasons to try to be local, but for most of the last 30 years the race to move to the cheapest production locations has been the mantra of CFO’s worldwide. As a former corporate finance manager in a global company, I can also attest that even while many of those decisions were being made, production, control & logistics managers were often quite vocal in their questioning of those decisions. It’s not hard to see why, since parts are moved from country to country then back to the original country in a tangled supply chain before reaching customers.

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Now that we have very sophisticated systems to monitor all aspects of a global supply chain and instantly communicate and display data from around the world in easy to follow “dashboards,” one thing has ironically now become clear: It’s often not the best decision to produce in the cheapest location. Whether it’s reshoring, near-shoring or producing across the globe, the decision needs to be made with data, and all factors need to be analyzed closely. Thankfully much of that data can be collected and analyzed due to tracking technology, and the factors that are less tangible are at least part of the discussion today.

Savvy companies are now considering the “total cost of ownership” instead of just making production cost decisions and are in much better positions to make the right choices. TCO analysis considers all of the supply chain, inventory costs, rework, design change implementation costs, etc. and even tries to take into account many of the intangibles. One of the keys to that analysis is the analysis of the stage of the company and how their products and product mix changes vs. just producing the same commodity parts all the time.

Innovate Mississippi works with many early stage companies, and while most of them have the ability to get quotes for Chinese production and some even choose to try that route, startups are the absolute worst candidates for overseas production because of the intangibles. While most startups think their designs are nearly complete,they usually are not. Once design changes are entered into the equation, having production far away is a recipe for additional costs. Although margins may be attractive on paper when costs are quoted from overseas production, the added — sometime invisible — costs can be substantial.

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One of the other intangibles that has frankly been very difficult to quantify is ever-evolving consumer tastes for locally produced products. It was always argued that while people said they wanted local or US made products, the “votes cast with their dollars” didn’t often reflect that. I’m convinced consumer tastes are evolving and that today many are willing to pay a certain premium for locally produced goods and are willing to select a local good over one produced overseas, but that still needs to be proven over the long term.

Companies obviously believe consumers want U.S. content as well, with retail giant Wal-Mart leading the effort with their commitment to source an additional $250 billion in U.S. products by 2023. I had the chance to accompany six Mississippi companies to Wal-Mart’s U.S. Manufacturing Supplier Summit recently, and the thousand hopeful suppliers there were proof that U.S. companies are ready to help Wal-Mart reach that goal. Since all six Mississippi companies successfully landed at least limited distribution through Wal-Mart, I hope to be able to write a column soon about their experiences in taking their inventions and early stage products to the world’s biggest retailer.

No matter what supply chain decision is made, data analytics should be the key driver for that decision making and while technology helped lead companies to overseas production, the data they are now collecting is often a part of their decision to bring production back home.

Full disclosure: InnovateMEP Mississippi (a line of business of Innovate Mississippi) and Mississippi State University operate a grant program called “Make it in America” and are hosting a “Reshoring Summit” event next month.

Tony Jeff is the president and CEO of Innovate Mississippi. He can be reached at tjeff@innovate.ms.