The Risks of Offshoring: Intellectual Property Theft

In an article in Supply Chain Management Review's July/August 2014 issue, researchers from Penn State's Center for Supply Chain Research outlined their study on counterfeiting. The article looks at the causes and consequences of counterfeiting, and at what companies can do, and are doing, to mitigate counterfeiting and its effects.

Intellectual property theft and counterfeiting are important risks—costs—to consider in any supply chain, especially a globalized one. It is a risk that can affect up- and down-chain businesses and ultimately end consumers: there are recent counterfeiting cases whose consequences have even been life threatening. Further, it is a TCO cost that can have negative repercussions on other variables, including by impacting innovation, quality, the image of the company, cost of replacement parts, and lead time, among others. Thus IP theft can have a cost-multiplying effect on your company’s TCO and is a serious risk of offshoring which needs to be identified and addressed rapidly and thoroughly.

The authors of the Penn State study provide several graphics demonstrating how counterfeits can arise and cause unnecessary costs and loss at various parts of the supply chain, laying out a useful basis to begin critically examining your own supply chain for counterfeit risk and potential IP theft cost.

Further, they provide a variety of proscriptions for combating counterfeiting in your own supply chain. The diagram below outlines how to combat counterfeiting in your own organization by working within the existing supply chain by boosting communication and accountability:

In addition to addressing potential problems within the existing supply chain, as the authors of the article suggest, IP theft can also be combatted by restructuring the supply chain to include lower-risk, onshore, local suppliers.

Only 8% of cases in the ReshoringInitiative’s library (as of August 2014) cite IP theft as a reason to reshore: this suggests there is a gap in awareness about how this issue can affect the bottom line, especially considering the potential cost consequences of IP theft risk in a global supply chain. A recent study from Kaspersky Lab found that 21% of businesses (about 20% of those surveyed were manufacturing firms) suffered some kind of intellectual property compromise or theft in the last year: IP theft can be financially and otherwise dire, but it is a risk that can be easily diminished or mitigated altogether by reconsidering the location and the constituents of your supply chain and by reconsidering its effects on your TCO.

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TCO ESTIMATOR

The Risks of Offshoring: A Multi-Faceted Perspective

An article in the the November 2014 issue of Supply & Demand Chain Executive by IHS economist John Mothersole titled "Supply Chain Risk: How to Effectively Evaluate Sourcing Risks and Opportunities" reviewed the results of an IHS/Supply & Demand Chain Executive study on supply chain executives' perspectives on volatility and risk in their supply chains. The study found while 50% of respondents "view China as one of the most likely sources of volatility in their supply chains", 25% declared interest in expanding their supply chains in China in the future.

Using The Reshoring Initiative's TCO Estimator: A How-To Guide

                                                      

Getting a Company Started with TCO

A.    Which parts to analyze

1.    By sourcing structure

Follow these priorities:

          1^st Keep existing domestic sources: No new offshoring w/o TCO analysis.

               2^nd Shift outsourcing back

3^rd Repurpose offshore own-facility to serve the offshore market. Incrementally invest domestically to serve domestic market

4^th Shut offshore own facility. Build new domestic facility.

The Reshoring Initiative's Economic Development Program

Economic Development Program

The Reshoring Initiative’s high impact-minimal cost economic development program outlined below is being implemented in Pennsylvania, Mississippi and central New York. We are seeking other regions interested in developing this opportunity.

"Social Reshoring" is a Win-Win with TCO

Labor costs are still higher in the U.S. than they are in China, but this is not the only piece of the puzzle manufacturers are using these days to determine whether to offshore or reshore production. Thanks to total cost of ownership (TCO) calculations, manufacturers are realizing that sacrificing a little in labor costs can be worth a lot in total cost. Higher productivity, quality, and ease of redesign combined with shorter lead times and lower freight and inventory costs are more than worth the margin on American labor. Many manufacturers are seeing that using TCO can increase profit margins as well as economic and commercial welfare in their communities.

According to one strategist, Thorsten Hoins, in a post titled “Consider Social Reshoring,” what many manufacturers may not be capitalizing on is their ability to improve social welfare by creating jobs where they might not previously have existed—and, yes, still remain cost-competitive. FVO Solutions, a provider of U.S.-based manufacturing and third party logistics services for private and public firms, maintains cost-competitiveness and provides socially-conscious Made in USA goods and services in one fell swoop. Their coup de grâce is that they “provide employment opportunities that would otherwise not exist”: operating as a not-for-profit, they practice what Hoins calls “social reshoring". In his definition, social reshoring is “[t]he practice of bringing outsourced labor back to the location from which they were originally offshored and create price competitive jobs in our own communities: for veterans, wounded warriors, at-risk youth, people with disabilities and others with barriers to employment.”

He suggests that by implementing social reshoring, manufacturers can bring jobs back to all Americans while increasing profitability and competitiveness: it's a win-win.

See Thorstein Hoins' full post here.

Is your company using a TCO model for sourcing decisions? Try the free Total Cost of Ownership Estimator.

Reshoring IT Hardware Leads to TCO Cost Savings and Risk Avoidance

A recent post on Planet Magpie, an IT blog, asks the seemingly-simple but surprisingly-complicated question, “where did your computers come from?” And perhaps more importantly, why should you care?

Inaugural Reshoring Summit – Manufacturing Networking at its Finest

by Harry Moser, founder of The Reshoring Initiative

Next week is sure to be exciting for the manufacturing community as key reshoring leaders and U.S. manufacturing stakeholders gather in Cleveland, Ohio for the inaugural Reshoring Summit: Bringing Manufacturing Back to the U.S. Presented by Infocast, the event will take place at the Cleveland Marriott Downtown in the Key Center March 12-14.

Being the first national event of its kind, The Reshoring Summit will focus solely on the issues surrounding the reshoring movement and serve as a unique opportunity for manufacturers to discover the benefits of making better sourcing decisions. Over the three days, we (the reshoring community) will engage in discussions with manufacturers, suppliers, governmental development organizations, site selectors and others in attendance. The event will also serve as a platform for building valuable relationships and learning how to sell against offshore competitors while attracting, obtaining and retaining companies to their regions.

As part of the educational sessions, case study reviews and interactive panels, I will deliver the opening day presentation on establishing the proper procedures when considering reshoring. The two-hour session will take a closer look at what factors companies must evaluate when making manufacturing and sourcing decisions. One factor that is frequently overlooked is the total cost of offshoring, easily done with our free Total Cost of Ownership Estimator™. The presentation will also cover the cost components necessary for determining accurate financial scenarios – many of which are ignored when making sourcing and investing decisions.

Other Reshoring Summit faculty and distinguished reshoring colleagues include Walter Snodell, Tobais Schoenherr, Hope Paolini, Scott Paul and Kristi Tanner. For more information and to register, please visit: www.infocastinc.com/reshoring.