Around this time last year – early enough that it was OK to still be dating checks with “2012” but late enough that the neighbors were audibly complaining about the lights on the roof – Procurement Insight’s Jon Hansen asked Source One to identify a few trends that would have an effect on the procurement industry in 2013. You can view the article here, then read below to see how well we did.
Prediction #1: Will China Continue as a Cost-Savings Haven?
With this first prediction, we cautioned that outsourcing to China, specifically, and Asia, generally, was losing its luster. At the time, there were reports of unused iron being piled on the streets outside of Chinese foundries and rising labor concerns and a strengthening workforce demanding higher wages. Our prediction was to keep an eye on other low cost Asian countries as well as nearshore countries like Mexico and Brazil.
Throughout 2013, outsourcing continued to lose its luster. In April, a large garment factory in Bangladesh collapsed, killing 1,129 people and injuring 2,500 more. This tragedy brought overseas working conditions to light, after workers were threatened with the loss of a month’s pay for failing to report to work following the discovery of cracks in the building, and Bangladeshi garment workers began protesting for better conditions and wages during October.
These rising labor costs, and a Chinese currency that is rising in value, along with ever-increasing shipping costs due to oil prices, lead AlixPartners to predict that manufacturing in the U.S. would achieve cost parity by 2015.
So, our prediction that China and Asian low cost countries were losing their luster as manufacturing destinations seems to still be the case.
Prediction #2: The Impact of Domestic Production
For this second prediction, we noted the increase of companies “re-sourcing” their manufacturing to the U.S., citing highly publicized statements from Apple CEO Tim Cook, as well as Chrysler and GE, and debated on whether or not that trend would continue. We held the position that the majority of these re-shoring efforts were done for the goodwill that “Made In America” wrings from consumers.
As the year progressed, and these “re-shoring” statements were fleshed out into business plans, it quickly became clear that domestic production wasn’t what was being promised, but domestic assembly. As was the case with Apple’s new Mac Pro – assembled in Texas, Kentucky, Illinois, and Florida – and with Google-owned Motorola’s Moto X – assembled in Texas – final assembly may have taken place in the U.S., but the American workers were putting together modular circuit boards, screens, and cases that were all still being built in Asia.
Regardless of present trends, the aforementioned AlixPartners report suggests that future domestic production endeavors may actually be done in earnest.
Prediction #3: Bracing for Healthcare Reforms
We predicted that those that sourced their Affordable Care Act benefits intelligently and efficiently would not make the news, or be in the news for all the right reasons, while those who fought tooth and nail only to scamper at the end, would be in the news for all the wrong ones. Turns out, the only thing making the news for the wrong reasons was the Affordable Care Act itself.
First came the July announcement that large employers – those with more than 50 employees – would not be held to the ACA until 2015. Then came the rollout errors when the consumer portal for the ACA went online in October, and promptly crashed. Finally, just as the portal was getting ready to relaunch came the late November announcement that the portal for small businesses would not be available until 2015.
So, just like early takes on the Affordable Care Act – this one’s a wash.