“Cloud Computing changes the concept of outsourcing and off-shoring as a physical exchange of services into one of virtual services whose location becomes a ‘one to many’ paradigm, which may be a combination of internal and external marketplaces.”
I remember thinking when I read the above excerpt from a March 2011 article titled Transforming your business operating model for outsourcing and off-shoring with strategic cloud computing, how it perfectly highlighted key elements of the process-oriented infrastructure upon which the Nipendo Supplier Cloud is based. Specifically the reference to the “One to Many” (or Nipendo’s Many-to-Many) virtual services that transcend the geographic limitations of a physical exchange. (Note: check out our January 29th post Clouds Come In Different Shapes for an overview of process-oriented infrastructure.)
What was most interesting was the suggested tendency for us to view off-shoring and near shoring within the context of a physical presence in which similar to the old real estate axiom of location, location, location, geography was the most critical consideration. This was due to the fact that labor costs could be significantly decreased by using lower-wage workers in developing nations, thus giving an organization a competitive edge.
However, and as reported in the January 2014 article “Next-shoring: A CEO’s guide” by Katy George, Sree Ramaswamy, and Lou Rassey this “traditional arbitrage model” appears to be “outmoded” in the present day reality that is the emerging global marketplace. The reason for this shift is due to wages and purchasing power rising in emerging markets, and the resulting increase in their importance beyond supply to one of demand.
As result, instead of focusing on off-shoring, near-shoring or re-shoring, the McKinsey authors suggest that CEOs would be better served by focusing on what they referred to as being next shoring. In describing this latest iteration of the . . . shoring concept, the authors indicate a change in focus where greater emphasis is placed on “proximity to demand,” and “proximity to innovation.”
One might be excused for thinking that this regionalized focus continues to stress the physical aspect of the “next” model. Nothing of course could be further from the truth.
While the ability to adapt to the product demands of a particular region is identified as a key objective it is, as the article reports, the emerging technologies that disrupt costs and processes and thus create new supply ecosystems that are the main differentiator. In other words, cloud-based solutions such as Nipendo’s are able to bring together the key elements of a next-shoring strategy. This includes a “rich network of innovation-oriented” partnerships regarding an organization’s supply base.
In my next post I will delve deeper into how you define the richness of your network’s partnership from a P2P standpoint, and what it means to your bottom line. In the meantime I would invite you to check out an earlier post I wrote on the subject of Business Process Outsourcing.