Continental shift

A few months ago, I was talking to Gartner analyst Dwight Klappich, who often advises clients on software applications. During our chat, he mentioned that some major corporations had been contacting him about software for supply chain network design, leading him to speculate that they were beginning to reexamine their sourcing methods and strategies.

That chance conversation got us wondering whether a shift in sourcing strategy was under way. To find out if his theory was correct, we developed an online questionnaire on that topic and invited CSCMP members to fill it out. Nearly three-dozen CSCMP members responded to our survey, and we sincerely thank those of you who took part.

The results of that survey, which we present on Page 16 of this issue, turned up evidence of an important shift in supply chain design. It's a change that has the potential to be so significant that I can't help comparing it to plate tectonics, the geological shift of huge landmasses.

What the survey results showed was that companies are indeed rethinking where and how they source materials and products. In fact, nearly half of the respondents said that they were considering moving some of their supply base closer to their home country.

The survey results also suggested that chief executive officers and chief financial officers are heeding supply chain executives' arguments that supply decisions should not be made simply on the basis of low labor costs. When it comes to selecting suppliers, what matters now is calculating total supply chain costs —the expenses of procurement, manufacturing, distribution, and more.

Like it or not, we are a petroleum-based global economy, now and for the foreseeable future, at least until there's a viable alternative-energy breakthrough. That means supply chains will have to be reshaped to minimize the use of fossil fuels. One way to do that is to make products closer to the point of consumption. I expect that in the future, companies will set up regional theatres for supply chain operations, sourcing products in Asia for Asian markets, in Eastern Europe for Western European markets, and in South and Central America for North America.

One factor behind this change in supply chain thinking is the rise in energy prices. As I write this, the market price of a barrel of oil is nearing US $130. Whether that price stays where it is, goes higher, or falls, there's no doubt that petroleum will remain an expensive commodity.

Just like the earthquakes that result when tectonic plates shift on the Earth's outer shell, the development of regional supply chains could soon shake up corporate boardrooms and supply chain organizations worldwide.