By Clifford F. Lynch
DC Velocity, June 2005
Just when we thought we finally had our industry
terminology straight, up pops that old semantics devil. The latest case involves
the term "outsourcing" Ė which most supply chain managers understand
to mean an arrangement under which a company hires an outside logistics service
provider to handle tasks that could be, or once were, provided in-house.
Outsourcing can be domestic or international. And thatís where the trouble
lies. Some have begun to think of international "outsourcing" as
synonymous with "offshoring," the controversial practice of shutting
down U.S. factories or offices and sending the jobs overseas. And as a result,
the mention of "outsourcing" today is greeted with the same enthusiasm
generally reserved for the avian flu virus.
As often happens, this misunderstanding has been perpetuated by some of the
general business publications. For example, when Forbes published a chart
sourced from Forrester Research summarizing the results of a survey of companies
that use offshore labor, it titled it not "Who Is Offshoring?" but
"Who Is Outsourcing?" Itís no wonder weíre confused. To be fair,
itís not just the business press thatís responsible for the confusion;
newspapers are to blame too. Between January and May 2004, U.S. newspapers
contained 2,634 articles on service outsourcing, most of which focused on job
losses, according to an International Monetary Fund working paper.
Itís not that concerns about U.S. job losses arenít real. They are.
Between March 2001 and March 2004, private-sector jobs dropped by 2.6 million.
Total manufacturing jobs fell 12 percent, while software jobs within the
manufacturing sector plummeted by 19 percent. The people in the latter group, of
course, are the very segment of the workforce who had long been assured they had
the precise skills required for success in the global economy.
That only made it sting all the more when about five years ago, U.S.
businesses discovered they could save millions of dollars by sending their IT
systems development and programming work to India and China. For those laid-off
programmers, thereís little prospect of relief. This particular brand of
outsourcing is expected to continue. Gartner Group predicts that by 2015, 30
percent of the IT jobs in the United States and other developed countries will
be offshored to low-cost countries.
While no oneís happy to see U.S. jobs disappear and livelihoods destroyed,
the fact of the matter is that no supply chain manager will be able to function
in todayís global economy unless heís given the freedom to use whatever
resources are necessary, regardless of their location. And whatever you choose
to call it (I prefer the term "international outsourcing"), I believe
that hiring foreign logistics service providers will remain a vital part of our
supply chain strategy. In fact, I predict that the practice will gather steam as
we take an increasingly global approach to our thinking and our operations.
In the logistics industry, at least, itís not the corporate pursuit of
cheap labor that drives companies to hire a foreign partner. Itís simple
common sense. Today, most of the stuff we buy originates offshore. Consider that
Wal-Mart alone imported $18 billion worth of Chinese products in 2004. Or that
the 8,000 companies in Chinaís Zhejiang province alone produce one-third of
the worldís supply of socks. It stands to reason that if youíre responsible
for shipping socks out of Zhejiang, youíre not going to be using a third-party
service provider out of Little Rock, Ark.
I should note that in the heat of argument, one fact rarely gets mentioned:
The exporting of jobs can be a two-way street. In 2003, U.S. companies may have
offshored $43.5 billion in jobs. But in the same year, we insourced $61.4
billion by providing labor to foreign companies.