Offshore sourcing

The nameplate capacity of worldwide methanol plants is given by country in Table 2 (27). A significant portion of this capacity is based on natural gas feedstock. Percent utilization is expected to remain in the low 90s through the mid-1990s. A principal portion of this added capacity is expected to continue to come from offshore sources where natural gas, often associated with cmde oil production, is valued inexpensively. This has resulted in the emergence of a substantial international trade in methanol. In these cases, the cost of transportation is a relatively larger portion of the total cost of production than it is for domestic plants. 

Bottom right quadrant. When value is transferred from shareholders to stakeholders, the company incurs a fiduciary liability to its shareholders. Actions intended to create stakeholder value that destroys shareholder value put into question the company s ability to create societal value over time. Avoiding offshore sourcing to protect American jobs is an example of actions that could create value for some stakeholders while destroying value for shareholders. Bringing back offshore jobs and union strikes to Keep Jobs in America may create job security for American workers in the short term, but can hurt companies whose operating cost structures become uncompetitive. 

All of these issues are now causing many companies and organisations to review their offshore sourcing/manufacturing decisions. Whilst there will always be a case for low-cost country sourcing for many products, it will not universally be the case as the following news item suggests. 

Usually the motivation for offshore sourcing and manufacturing is cost reduction. Flowever, that definition of cost is typically limited to the cost of purchase or manufacture. Only rarely are total supply chain costs considered. The result of these cost-based decisions is often higher levels of risk as a result of extended lead times, greater buffer stocks and potentially higher levels of obsolescence - particularly in short life-cycle markets. A further impetus to the globalisation of supply chains has come from the increase in cross-border mergers and acquisitions that we have witnessed over the last decade or so. 

Whilst centralised production and offshore sourcing will still make sense for some product categories, there will be a need to bring supply much closer to demand. This change in thinking will be driven by the growing environmental concern over carbon footprints but also by cost considerations as transport costs continue to rise. At some point in the future no doubt new forms of energy may become available which could reverse this trend - but that is likely to be some years away. 

Firms must consider a tailored sourcing strategy that couples responsive onshore or near-shore sources with low-cost offshore sources. The responsive onshore sonrces shonld focns on high-value products with high demand volatihty, whereas the low-cost, offshore sonrces should focus on lower-value, high-volume products with high labor content. 

Design a tailored supplier portfolio. Firms should select a combination of responsive and low-cost sources that may be onshore, near-shore, or offshore. Responsive, onshore sources are best suited for high-value products with volatile demand and relatively low labor content. Low-cost, offshore sources are best suited for products with high labor content, large predictable demand, and low transportation cost relative to product value. 

Frear, C, Metcalf, L and Alguire, M. (1992) Offshore Sourcing Its Nature and Scope International Journal of Purchasing and Materials Management, vol. 28, no. 3, pp. 2-11. 

Combustion of oil produces CO, a contributor to global wanning, and while oil combustion is more efficient than combustion of coal, it is less efficient than natural gas. Oil is unique as a liquid fuel and thus is used predominantly in the transportation sector, making reduction of emissions more challenging. Oil extraction can be damaging to the environment, and more frequently, offshore sources are being... 

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