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Globalization is reversible. That statement, made a year ago by CIBC World Markets economist Jeffrey Rubin, was on my mind as I prepared to attend a Global Sourcing Council conference in New York this week.

The statement by Rubin was made when oil was trading at close to $150 a barrel and Americans were filling their tanks for summer vacations with gasoline at $4 or more at the pumps. His argument was simple: globalization had occurred during an era when fuel to ship huge tankers of products from China and other overseas markets was relatively cheap.

However, with oil at $150 a barrel, transportation costs were quickly eliminating many of the labor and cost benefits of sourcing products from overseas. Trade liberalization and technology may have flattened the world, said Rubin, but rising transport prices were threatening to once again make it rounder.

Flash forward a year and the world has changed a lot, although not yet in the direction Rubin indicated. Oil prices fell to almost a third of their highs last summer as the global recession dampened the thirst for oil. For now many of the fears associated with sourcing products overseas have dissipated, but as the economy heats up again, companies will once again need to explore their global sourcing strategies.

The topic was on my mind because the theme of the conference is: Global Sourcing after the Meltdown: In Search of Sustainability.  I will be chairing a CIO roundtable session, and I am aware that CIOs have to juggle a very challenging set of priorities related to global sourcing.

Their companies are looking to the CIO to put systems and business intelligence platforms in place to help make global sourcing decisions faster. At what price point does it no longer make sense to ship parts in from China, and instead look to source from a closer location, such as Mexico, Brazil, or the U.S.?

If supply chains do need to become more nimble, then CIOs must also ensure that accompanying business processes can be easily shifted or changed to meet the needs of new suppliers or customers.

Companies are under more pressure than ever before to limit their environmental and carbon footprint. That means CIOs have had to look for systems that can help their companies evaluate sourcing locations not just on cost but also on the environmental footprint of the products they sell. If a product can be produced in China for marginally less than in the U.S., but the environmental footprint is three times as large, that must also be weighed.

 
And finally, CIOs are facing increasing pressure from public policy groups and from their company shareholders, to ensure the computer hardware they purchase for use in operations is being properly managed from cradle to grave. No one wants to show up on 60 Minutes having to explain that they have no idea if their company’s used computers, monitors or other hazardous eWaste are being dismantled by unprotected laborers in China or elsewhere.

Globalization may have made the world seem smaller, but for the CIO, the list of challenges keeps getting bigger.
 

Comments (2)

	1. 06-03-2009 10:25
	Globalizaton of hard good production may indeed be reversible based on fuel costs, and certainly CIOs should be focused on enabling the decision support systems to help evaluate that tradeoff. It would seem that this issue is easier to assess, however, than the globalization of labor in services sectors that do not produce hard goods, such as IT, etc. The globalization of labor in the services sector seems to be more of a constant as it is largely insulated from physical constraints, and yet most organizations still do not have a mature means to identify or manage how work is outsourced offshore. Many offshore outsourcing strategies are still merely knee-jerk cost cutting measures, with practical little understanding of the security, quality, workforce or societal implications of these programs. Registered

Frederick B. Kauber

	2. 06-04-2009 11:46
	Just returning from the Global Sourcing Summit and have a few observations. While companies are more concerned about sustainability in their sourcing, there is a threshold or price to their concerns. One CIO at the conference suggested if the cost of sourcing a product or part from one location is 10% higher - even though it has a much lower carbon footprint - a company will almost certainly go with the lower priced product. But - if two products are relatively equal in price - and one can be shown to have a lower footprint (less distance traveled from source to market, lower carbon emissions in production, etc.) then a company will be much more likely to choose the 'greener' option.  The other observation is that while companies are interested in weighing the environmental footprints of the products they source, they have little confidence in the metrics used to measure the footprints. There are no clear sets of standards. You cannot, as one speaker said, accurately compare apples to apples. Registered

Mel Duvall

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