What's Driving the New Insourcing Trend?

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By Tim Minahan, SVP of Global Network Strategy and Chief Marketing Officer at Ariba, an SAP company

example of insourcing

Production Line – Wright’s Biscuits (Photo credit: Tyne & Wear Archives & Museums)

In recent weeks, news of major brand-name manufacturers – from Apple to GE – bringing production back onshore has dominated the headlines.

The reports are not surprising as deflation, low interest rates, and foreign investment at home and rising wages and transportation costs abroad have combined to make the US more attractive than China, Korea, India and other low-cost regions where global manufacturers once rushed to move production.

Many mistakenly refer to this trend as the “insourcing boom.”  Technically, insourcing is the process of moving manufacturing or other processes that were done by outside suppliers – regardless of where those suppliers are located – back in house. But let’s not let technicalities distract from the real issue at hand. A shift in global macro-economic balance is causing more and more manufacturers to bring manufacturing back home to the US and Western Europe.  And here’s what’s driving it:

Rising wages in formerly low-cost regions – especially China

In the 1990s, manufacturers flocked to outsource manufacturing and shore up supply land assembly work in low-cost regions like China, India, and, more recently, Vietnam. At the time, the rallying cry of big corporates was to get the “China price,” referring to the fact that they could hire 20 or 30 workers in China for what it cost to hire one union-backed laborer stateside. No more. As many manufacturers have learned the hard way, the China price may no longer be worth it. China labor rates climbed 5X from 2000 and are expected to grow 18% annually for the foreseeable future.

Higher energy prices, transportation, and manufacturing costs

Oil prices are 3X what they were a decade ago. Couple that with constraints on cargo ships from the Far East, and that once-affordable slow-boat from China is no longer such a bargain.

Increase labor productivity in the US (and Western Europe)

The percentage of the total cost of finished goods attributed to labor in the US and other developed nations continues to shrink, making it far more affordable to manufacture closer to home. The productivity boom in the US has been driven by in party plant enhancements and a shift to higher-level manufacturing. The recession and union concessions have also played a role in boosting productivity.

For manufacturers, the message is pretty clear: There’s  a price to pay for cheap labor.

Case in point, GE recently reinvigorated production at its once robust Appliance Park facility in Louisville, Kentucky by bringing manufacturing for some high-end home appliance lines back from China. In doing so, the company was able to lower its production costs and ultimately its sticker price by nearly 20%. Time-to-market lead times shrunk from over 5 weeks to 30 minutes from factory to warehouse. And quality levels have also improved.

Many of the components in Apple’s hot-selling iPhone line – from components to glass screens – are now made in the US. And the company has publicly committed to producing one of its Mac lines domestically next year.

This is not just a big company trend. Savvy businesses of all sizes are leveraging business networks to not just keep tabs on existing supply in low cost regions, but also to balance the total cost factors and, in many cases, find alternative sources of supply much closer to home.

For example, Plaid Enterprises, a mid-sized manufacturer of do-it-yourself products, had outsourced most of its production to China. But when labor wage increases, rising transportation costs, and shipment delays began to negatively impact its business, Plaid used a business network to uncover potential suppliers.

The network not only provided a directory of suppliers that met Plaid’s requirements, but it also offered up insights into each supplier – such as how many other buyers the supplier was doing business with on the network; how many RFPs it had been invited to and won within the past year; and how other buyers rated the performance of each supplier – harvested from structured transactions and unstructured comments and ratings from other network members.

Plaid uncovered alternative suppliers as far away as Vietnam, but, after a competitive bidding process, selected a new supplier closer to home – in fact, 30 miles from its US facilities. As a result, Plaid was able to cut the cost of supply by 30% cost and shrink lead times to 30 days or less, down from over 120 days when sourcing from China.

As the tectonic plates of the global economy continue to shift, manufacturers of all sizes will continue to re-examine their once lofty low-cost country sourcing plans. Rather than making decisions solely on labor price, manufacturers and other businesses will consider total cost, time-to-market, quality and other market factors. And this holistic approach should prove more sustainable – and profitable – in the long run.

Tim Minahan is responsible for strategy development and execution for the Ariba Network, the world’s largest and most global business network. He also oversees the design and execution of messaging and marketing operations at Ariba, an SAP company.


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13 Scary Statistics On Employee Engagement [INFOGRAPHIC]

Jacob Shriar

There is a serious problem with the way we work.

Most employees are disengaged and not passionate about the work they do. This is costing companies a ton of money in lost productivity, absenteeism, and turnover. It’s also harmful to employees, because they’re more stressed out than ever.

The thing that bothers me the most about it, is that it’s all so easy to fix. I can’t figure out why managers aren’t more proactive about this. Besides the human element of caring for our employees, it’s costing them money, so they should care more about fixing it. Something as simple as saying thank you to your employees can have a huge effect on their engagement, not to mention it’s good for your level of happiness.

The infographic that we put together has some pretty shocking statistics in it, but there are a few common themes. Employees feel overworked, overwhelmed, and they don’t like what they do. Companies are noticing it, with 75% of them saying they can’t attract the right talent, and 83% of them feeling that their employer brand isn’t compelling. Companies that want to fix this need to be smart, and patient. This doesn’t happen overnight, but like I mentioned, it’s easy to do. Being patient might be the hardest thing for companies, and I understand how frustrating it can be not to see results right away, but it’s important that you invest in this, because the ROI of employee engagement is huge.

Here are 4 simple (and free) things you can do to get that passion back into employees. These are all based on research from Deloitte.

1.  Encourage side projects

Employees feel overworked and underappreciated, so as leaders, we need to stop overloading them to the point where they can’t handle the workload. Let them explore their own passions and interests, and work on side projects. Ideally, they wouldn’t have to be related to the company, but if you’re worried about them wasting time, you can set that boundary that it has to be related to the company. What this does, is give them autonomy, and let them improve on their skills (mastery), two of the biggest motivators for work.

Employees feel overworked and underappreciated, so as leaders, we need to stop overloading them to the point where they can’t handle the workload.

2.  Encourage workers to engage with customers

At Wistia, a video hosting company, they make everyone in the company do customer support during their onboarding, and they often rotate people into customer support. When I asked Chris, their CEO, why they do this, he mentioned to me that it’s so every single person in the company understands how their customers are using their product. What pains they’re having, what they like about it, it gets everyone on the same page. It keeps all employees in the loop, and can really motivate you to work when you’re talking directly with customers.

3.  Encourage workers to work cross-functionally

Both Apple and Google have created common areas in their offices, specifically and strategically located, so that different workers that don’t normally interact with each other can have a chance to chat.

This isn’t a coincidence. It’s meant for that collaborative learning, and building those relationships with your colleagues.

4.  Encourage networking in their industry

This is similar to number 2 on the list, but it’s important for employees to grow and learn more about what they do. It helps them build that passion for their industry. It’s important to go to networking events, and encourage your employees to participate in these things. Websites like Eventbrite or Meetup have lots of great resources, and most of the events on there are free.

13 Disturbing Facts About Employee Engagement [Infographic]

What do you do to increase employee engagement? Let me know your thoughts in the comments!

Did you like today’s post? If so you’ll love our frequent newsletter! Sign up here and receive The Switch and Shift Change Playbook, by Shawn Murphy, as our thanks to you!

This infographic was crafted with love by Officevibe, the employee survey tool that helps companies improve their corporate wellness, and have a better organizational culture.


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Supply Chain Fraud: The Threat from Within

Lindsey LaManna

Supply chain fraud – whether perpetrated by suppliers, subcontractors, employees, or some combination of those – can take many forms. Among the most common are:

  • Falsified labor
  • Inflated bills or expense accounts
  • Bribery and corruption
  • Phantom vendor accounts or invoices
  • Bid rigging
  • Grey markets (counterfeit or knockoff products)
  • Failure to meet specifications (resulting in substandard or dangerous goods)
  • Unauthorized disbursements

LSAP_Smart Supply Chains_graphics_briefook inside

Perhaps the most damaging sources of supply chain fraud are internal, especially collusion between an employee and a supplier. Such partnerships help fraudsters evade independent checks and other controls, enabling them to steal larger amounts. The median loss from fraud committed
by a single thief was US$80,000, according to the Association of Certified Fraud Examiners (ACFE).

Costs increase along with the number of perpetrators involved. Fraud involving two thieves had a median loss of US$200,000; fraud involving three people had a median loss of US$355,000; and fraud with four or more had a median loss of more than US$500,000, according to ACFE.

Build a culture to fight fraud

The most effective method to fight internal supply chain theft is to create a culture dedicated to fighting it. Here are a few ways to do it:

  • Make sure the board and C-level executives understand the critical nature of the supply chain and the risk of fraud throughout the procurement lifecycle.
  • Market the organization’s supply chain policies internally and among contractors.
  • Institute policies that prohibit conflicts of interest, and cross-check employee and supplier data to uncover potential conflicts.
  • Define the rules for accepting gifts from suppliers and insist that all gifts be documented.
  • Require two employees to sign off on any proposed changes to suppliers.
  • Watch for staff defections to suppliers, and pay close attention to any supplier that has recently poached an employee.

About Lindsey LaManna

Lindsey LaManna is Social and Reporting Manager for the Digitalist Magazine by SAP Global Marketing. Follow @LindseyLaManna on Twitter, on LinkedIn or Google+.


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Compelling Shopping Moments: 4 Creative Ways Stores Connect With Their Customers

Ralf Kern

compelling shopping momentsOn a recent morning, as I was going through my usual routine, my coffeemaker broke. I cannot live without coffee in the morning, so I immediately looked up my coffeemaker on Amazon and had it shipped Prime in one day. My problem was solved within minutes. My Amazon app, and my loyalty account with that company, was there for me when I needed it most.

It was in this moment that I realized the importance of digital presence for retailers. There is a chance that the store 10 minutes from my house carries this very same coffeemaker; I could have had it in one hour, instead of one day. But the need for immediate access to information pushed me to the online store. My local retailer was not able to be there for me digitally like Amazon.

Retail is still about reading the minds of your customers in order to know what they need and create a flawless experience. But the days of the unconnected shopper in a monochannel world are over. I am not alone in my digital-first mindset; according to a recent MasterCard report, 80% of consumers use technology during the shopping process. I, and consumers like me, use mobile devices as a guide to the physical world.

We don’t need to have an academic discussion about multichannel, omnichannel, and omnicommerce and their meanings, because what it really comes down to for your consumers, or fans, is shopping. And shopping has everything to do with moments in your customers’ lives: celebration moments, in-a-hurry moments, I-want-to-be-entertained moments, and more. Most companies only look for and measure very few moments along the shopping journey, like the moment of coupon download or the moment of sales.

Anticipating these moments was easier when mom and pop stores knew their customers by name. They knew how to be there for their shoppers when, where, and how they wanted it. And shoppers didn’t have any other options. Now it is crucial for companies to understand all of these moments and even anticipate or trigger the right moments for their customers.

In today’s digital economy the way to achieve customer connection is with simple, enjoyable, and personalized front ends that are supported by sophisticated, digital back ends. Then you can use that system to support your customer outreach.

Companies around the world are using creative and innovative methods to find their customers in various moments. Being there for customers comes in many different shapes and forms. Consider these examples:

Chilli Beans

A Brazilian maker of fashion sunglasses, glasses, and watches, Chilli Beans has a loyal following online and at over 700 locations around the world. Chilli Beans keeps its customers engaged by releasing 10 limited-edition styles each week. If customers like what they see, they have to buy fast or risk missing out.


Online men’s fashion retailer Bonobos reaches its customers with its Guide Shops. While they look like traditional retail outlets, the shops don’t actually sell any clothes. Customers come in for one-on-one appointments with the staff, and if they like anything that they try on, the staff member orders it for them online and it is shipped to their house. The 20 Guide Shops currently open have proven very successful for the company.

Peak Performance

Peak Performance, a European maker of outdoor clothing, has added a little magic to its customer experience. It has created virtual pop-up shops that customers can track on their smartphones through, and they are only available at sunrise and sunset at exact GPS locations. Customers who go to the location, be it at a lighthouse or on top of a mountain, are rewarded with the ability to select free clothing from the virtual shop that they have unlocked on their phones.

Shoes of Prey

The customer experience is completely custom at Shoes of Prey, a website where women can design custom shoes. From fabric to color, the customer picks every element, and then her custom creation is sent directly to her house. Shoes of Prey has even shifted its business model based on customer feedback. Its customers wanted to get inspiration and advice in a physical store. So Shoes of Prey made the move from online-only to omnicommerce and has started to open stores around the world.

While the customer experience for each of these connections is relatively simple – a website, a smartphone, an online design studio – the back end that powers them has to be powerful and nimble at the same time. These sophisticated back ends – powering simple, enjoyable, and personalized front ends – will completely change the game in retail. They will allow companies to engage their customers in ways we can’t even begin to imagine.

Technology will help you be there in the shopping moment. The best technology won’t annoy your customers with irrelevant promotions or pop-up messages. Instead, like a good friend, it will know how to engage with customers and when to leave them alone – how to truly connect with customers instead of manage them. Consequently, customer relationship management as we know it is an outdated technology in the economy of today – and tomorrow. Technologies that go beyond CRM will help retailers to differentiate. Aligning your organization and those technologies will be the Holy Grail to creating true and sustainable customer loyalty.

Learn more ways that business will never be the same again. Learn 99 Mind-Blowing Ways The Digital Economy Is Changing The Future Of Business.

Find out how SAP can help you go beyond CRM and support your retail business.

Ralf Kern is Global Vice President Retail for SAP and a retail ambassador for SAP. Interested in your feedback. You can also get in touch on Twitter or LinkedIn

This blog also appeared on SAP Customer Network.


About Ralf Kern

As Global Vice President for the Retail Business Unit at SAP SE, I am taking up the challenge of the future direction of SAP’s solution and global Go-to-Market strategy for Omnicommerce Retail, leading them into today’s digital reality. My career reflects a permanent expansion of my expertise that I achieve through continuous professional training. Based on my Master’s degree in Computer Science and Business Administration from the Saarland University (Germany), I broadened my professional knowledge through challenging positions within different industries and through further trainings regarding professional management and leadership at the Columbia Business School and at the European School of Management. After working for an international bank and a leading insurance company, I decided to go the next step and started to change my career direction at the retail software and consulting start-up Dacos and later at one of the world’s leading information technology company SAP. Now, with more than 25 years of experience in the field of information technology, Retail, consulting, global project management, merger and acquisition as well as solution and service development, I have a proven record of satisfying customer needs and continuously exceeding performance expectations. Due to my successful record of accomplishment within SAP SE, I reached my current position as Global Vice President for the Retail Business Unit, where I complete my task with an extremely talented and solution-oriented apporach. Besides, as an enthusiastic professional, I acquired over the years the ability to manage large teams and multiple responsibilities in a fast-paced environment and possess strong interpersonal and communication skills coupled with extensive technical, commercial and strategy development skills and I am exceedingly committed to the highest level of professional and personal excellence.

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The Importance Of Leadership On Employee Engagement [INFOGRAPHIC]

Charmian Solter

Here at Switch & Shift we strive to illuminate effective leadership practices. We pride ourselves on creating cutting-edge solutions for employee engagement, communication, and creating company culture, to name a few.

Why are these topics so important? Well, according to The Importance of Employee Engagement infographic by NBRI, courtesy of Brandon Gaille, if leadership doesn’t step up and affect change and build trust and engagement, their employees will be busy doing anything but work while on the job! This infographic says it all.


For more on developing more engaged, loyal, and productive workers, see How Empowering Employees Creates a More Engaged Workforce.


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