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The ‘Ponderous Chain’ That Keeps Jobs Overseas

When the editor of EBN approached me to author this column, I objected, saying, “Wait a minute. I don't know nothin' about supply chains,” to which he replied that his readers are eager for variety and would be happy if I wrote about “anything but supply chains.”

And so I have. But I have to admit that, as it keeps popping up in the news, supply-chain stuff kind of fascinates me. For example, I know that the invention of the container ship was a big deal for the supply chain, because it expanded the capacity of a single ship while automating the loading and unloading process so drastically that the word “stevedore” has slipped from the vernacular.

This vast streamlining of the trans-oceanic part of the supply chain has resulted in some amazing stories. One that got a lot of attention during the election, because it involved Bain Capital (Mitt Romney's alma mater), was the shift of a sensor manufacturer named Sensata from a little plant in Freeport, Ill., to a new location somewhere in China. Bain Capital, an owner of Sensata, got a lot of bad press because it flew a crew of Chinese workers to Freeport, where the American employees — all of whom were being laid off — were compelled to train the unskilled, low-wage communists who were taking their jobs.

All this publicity, however, overlooked the terrific logistical aspects of this offshoring saga. Not only were about 100 jobs moved overseas; every important component of the manufacturing process, including machines, testing equipment, office furniture — the works — were rolled into containers, trucked to the West Coast, stacked onto container ships and transported more than 7,000 miles. This is a feat once unthinkable and certainly too costly to accomplish in a past era that didn't have a supply chain so efficient as today's. One has to simply stand back, look objectively past the human tragedy of Sensata, and say, “Far out!”

Even more remarkable is that many customers for Sensata's sensors, which go into cars, RVs, airplanes, heating and air conditioning systems, mobile phone networks, etc., are right here in the US. Before its operations were moved to China, a Sensata truck driver could climb into a Dodge van and haul a half-ton of automotive sensors, switches, and control devices from Freeport to the Chrysler plant over in Belvidere, Ill., in about 50 minutes — most of the trip on legendary US Route 20.

As of next year, that same shipment — now from Shanghai to Belvidere — will take… well, not being well versed in supply-chain stuff, I really don't know how long it might take. But more than 50 minutes, I bet.

But that's not the point. Seven thousand miles on trucks, trains, and ships is — by the judgment of the MBA wizards at Bain Capital — way more businesslike and cost-effective than 45 miles in a Dodge van on Route 20. This is apparently how the supply chain works nowadays. It's not for dilettantes like me to plumb its mysteries.

But then, I read about Apple's plans to “reshore” to America a tiny share of its computer manufacturing in China. Apple CEO Tim Cook suggested that he'd like to do more, but he's hobbled by a supply chain that's hard to lift up and move around. This reminded me of Dickens's A Christmas Carol , where the ghost of Jacob Marley describes Ebenezer Scrooge's burden of penance — for a lifetime of greed and selfishness — as “a ponderous chain.”

Still, I couldn't help noticing a paradox. On one hand, Apple can't make stuff in, say, Freeport, because putting together a new supply chain would cost a fortune and displace a network of established links. On the other hand, Bain Capital and Sensata, for the sake of trimming the wages, benefits, and pensions of a mere 100 hourly workers, found it easy, thrifty, and strangely gratifying to cast aside a comparatively short and completely intact supply chain — some of whose links are less than an hour away by Dodge van — in favor of one that stretches some 7,000 miles over two continents, requiring interaction among people who speak at least three distinct languages.

In the process, they shipped a whole factory — lock, stock, and heavy machinery — across the Great Plains, the Continental Divide, and the Pacific Ocean. Far, again, out!

Obviously, there's a lot about supply chains that I don't understand, especially the rules for outsourcing. But it does occur to me that if shipping jobs overseas were more like sending Christmas packages to my kids — the heavier the box and the farther it goes, the more I have to pay — companies like Bain might be less eager to back up the moving van.

7 comments on “The ‘Ponderous Chain’ That Keeps Jobs Overseas

  1. FLYINGSCOT
    December 11, 2012

    I find it remarkable that goods can be shipped half way around the world and still be produced cheaper than using local sources.  I also cannot wait until this situation is reversed or people are willing to pay a little more for locally sourced goods.  However I am not holding my breath.

  2. rohscompliant
    December 12, 2012

    The logistics Genie is out of the bottle and it won't ever go back in………..until wages/shipping costs = what it would cost to be made here…….

  3. prabhakar_deosthali
    December 14, 2012

    From the days when  almost each village in this world was isolated and had to depend upon the local supplies , local skills, local employment and all that local to survive, we have come a long way when people like Columbus and Vasco-d-gama set out to find new lands overseas to find new avenues of trade. May be we should call them the pioneers of the modern day supply chain.

    Initially it was only goods that moved across these supply chains – raw materials and finished goods.

    Now in the modern supply chain the whole businesses have got converted themselves into a distributed operations and the supply chain has become the backbone of such businesses.

    The supply chain evolution has helped these businesses to optimize on material costs, manpower costs, warehousing costs and and selling costs.

     

    So in this Supply chain centric business model there is nothing like local or overseas -whether it is jobs or material.

     

  4. Mr. Roques
    December 14, 2012

    I also find it remarkable. It would make sense if they wanted to go international and sell to multiple companies but if their customer is 50mi away, it makes no sense or it simply illustrates that there's something wrong.

  5. David Benjamin
    December 14, 2012

    Prabhakar's comment is a jumble of business jargon, that justifies the way things are done without proving that this works better than any other system. Is there, anywhere, a way to analyze, financially, on a case-by-case basis — over, say, the next ten years (rather than the next two business quarters) — whether offshoring an entire company's operations is really cheaper than keeping it in place? Have we accepted the hollowing out of America's manufacturung capacity, and much of its service sector, without measuring whether we're getting our money's worth?

  6. SP
    December 16, 2012

    Human minds always think in the line that good produced locally must be cheaper than one that is imported from outside. If its expensive they would wonder why, but would not ready to pay extra for local stuff.

  7. Ariella
    December 17, 2012

    @SP Well, that depends on what it is. For example, supermarkets have started touting that they carry “local” produce, and it is not cheaper than the standard stuff. Sometimes it may even be a tad more expensive, particularly if it also lays claim to the label “organic.” In that case, people feel the premium price is worth it because they are getting something fresher, probably tastier, (because produce that has to travel has to be picked before it is fully riper) and something that support people in the area (or perhaps the next state).

    On the weekend of Black Friday, there was also a “Small Business Saturday” event sponsored by American Express that gave an incentive for people to do their holiday shopping at local stores rather than online. In my own neighborhood, I saw that did work. Even at stores that had no sales on, the $25 bonus from American Express made the checkout lines much longer than they normally are. 

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