Costs of Going Offshore May Outweigh Benefits

Supply chain complexity, poor logistics and trade management erode product cost savings when companies go global, Aberdeen reports

Supply chain complexity, poor logistics and trade management erode product cost savings when companies go global, Aberdeen reports

Boston, MA — April 7, 2005 — The promise of dramatically lower product costs by sourcing goods overseas is being tempered by the complex realities of managing and financing global supply chain operations, which are eroding the anticipated profit gains from going global, according to a new benchmark report out this month from technology consultancy Aberdeen Group.

In its research, Aberdeen took a detailed look at the practices and performance of companies that have embarked on global product sourcing and selling strategies. The study, titled "New Strategies for Global Trade Management," surveyed 170 companies and examined their processes for sourcing goods with overseas suppliers, selling goods internationally, financing global trade, managing cross-border logistics and complying with increasingly stringent trade and cargo security regulations.

Among the biggest challenges for companies: keeping their global supply chains operating consistently, while ensuring that the cost of logistics and the expense of financing longer supply lines do not overwhelm the anticipated savings from overseas manufacturing or sourcing.

"Sourcing and selling internationally is an alarmingly inefficient process today," said Beth Enslow, Aberdeen's vice president of enterprise research and author of the report. "Today's cross-border supply chains are strapped together with disconnected, manual processes. They are buffeted by high supply chain unpredictability and continually evolving regulatory demands. Making matters worse, we found that more than half of companies do not even measure their global trade performance. Most also lack the technology to help them do so."

Enslow revealed that of all the companies surveyed, 91 percent felt pressure to revisit or revise their global trade strategies because:

  1. Long and uncertain lead times were inhibiting their ability to respond to market demands and adequately fill orders on a timely basis; and,

  2. Projected product cost savings were being absorbed by unanticipated, higher costs from operating longer and more complex global supply chains.
New Technologies Key

The report found a clear disparity between companies that have employed modern technologies to automate and connect global supply chain processes, and those that simply tried to "extend" domestic systems or were reliant on manual, unintegrated activities. It was within these latter companies in particular that the study uncovered disconnects between expected procurement savings and total delivered cost. Companies that had poor global trade management processes suffered from longer and more unpredictable lead times, supplier failures, cost overruns, slower cash flow and ultimately lower profits and less satisfied customers.

"Those companies making strategic investments in global systems to better manage and synchronize logistics, compliance and trade finance as an integrated process are making great headway," Enslow noted. About 20 percent of respondents were able to achieve a 16 percent or greater reduction in delayed shipments and documentation issues, and an 11 percent or greater reduction in total landed cost.

The best of the best have had even more dramatic gains. A number of companies reported reducing delayed shipments by over 25 percent, documentation issues by over 40 percent and total landed cost by more than 25 percent.

Automating, Synchronizing Processes

These leaders are automating and synchronizing the historically disjointed and manual-intensive processes of trade compliance, international logistics and global procurement. Increasingly, they are setting up global trade competency centers and instituting corporate-wide performance measurements. The most advanced are also better synchronizing the flow of goods with the flow of money.

The Aberdeen report is available at

Additional Articles of Interest

— Imminent terrorist attacks or no, your competitive advantage demands that you secure your company's supply chain. Read more in "Supply Chain Security: Is Your Company Complacent or Engaged?," in the February/March 2005 issue of Supply & Demand Chain Executive.

— For a look at how Tyco Fire & Security is tackling trade compliance issues in its global supply chain, see "Turning Global Trade Compliance Into a Competitive Advantage," in the August/September 2004 issue of Supply & Demand Chain Executive.

— For more information on the challenges and opportunities presented by increasingly global supply chains, see the special in-depth report in the August/September 2004 issue of Supply & Demand Chain Executive, which includes the following articles:

— For more information on the global supply chain, with a focus on security issues, see "Building the Secure Supply Chain," the Net Best Thing article in the June/July 2003 issue of iSource Business (now Supply & Demand Chain Executive) magazine.

— For more information on the latest trends in the logistics space, see the article "The Analyst Corner: Fulfillment & Logistics" in the October/November 2004 issue of Supply & Demand Chain Executive.