Businesses Feel the Pain of Offshore Buying

For many companies, plans to save money by purchasing from overseas have boomeranged. But some businesses are turning things around by deploying supply chain systems, says a new study. (CIO Insight)

To try to cut costs, enterprises of all sizes are moving more and more to "offshoring," buying their finished goods and raw materials from China and other overseas countries.

But to keep these globalization efforts from backfiring, businesses need to adopt new IT systems in areas ranging from trade documentation to container security, according to new research from the Aberdeen Group.

The reality of global trading is exceeding the hype, said Beth Enslow, an Aberdeen analyst, during a Webcast on Friday. Many large enterprises with revenues of $50 million or more plan to be doing 20 percent of all their purchasing from China by the end of this year, according to the analyst.

"Even small to midsized [companies] are moving very aggressively," Enslow said. "Supply chains are growing longer and longer."

/zimages/3/28571.gifClick here to read about offshorings effect on the job market.

On the other hand, global trade can turn out to be extremely inefficient, according to Enslow. "There is a tremendous amount of pain today," the analyst told the audience.

/zimages/3/28571.gifTo read about the Bush administrations stance on offshoring,

In the recent study by the Aberdeen Group, 91 percent of the 170 surveyed companies said they feel pressured to make changes to their global trade process, for the following two reasons.

First, "lead times"—or the time it takes to gain possession of purchased goods—are "inhibiting their ability to respond to market demands."

Second, expected product-cost savings are being "eroded by unanticipated global supply chain costs."

Other problems cited by the respondents included global security requirements and threats, delays and fines caused by compliance and documentation errors, and "slower cash flow, greater working capital, and higher financial settlement costs than anticipated."

Aberdeens survey also pinpointed two main reasons for inefficiencies in global trading: insufficient automation and a lack of trading "cross-functionality," with too many purchases being performed at the departmental level, Enslow said.

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