No strategy can confer advantage forever, regardless of how disruptive or earth shattering it is when first used. And it’s often events beyond the control of the company employing the strategy that reduce, or eliminate, the benefits it offers.

George Stalk, a strategy consultant and senior partner with the Boston Consulting Group, recently gave a talk about his new book, “5 Future Strategies You Need Right Now”. While discussing 1 of them, he points out the problems that companies who rely on offshore manufacturing are going to face – soon.

The problems are rooted in what Stalk calls the “China riptide”, the fact that the volume of goods now arriving from China and other Asian countries has accelerated rapidly and is growing fast. Stalk points out that the incremental inbound flow of containers to the U.S. has reached about 1.5 million containers a year – equal to the capacity of the Port of Vancouver.

The lockout of dockworkers in 2002, and the surge of containers which almost overwhelmed LA/Long Beach in 2004, focused attention on how dependant we had become on imported goods. But people paid less attention to the extent to which we depend on a small number of ports, the ease with which their operation can be disrupted and the impact of that on the economy. One prediction, quoted by Stalk, is that the West Coast ports of the United States will reach their combined capacity to load and unload containers as early as 2010 – less than 2 years away.

There are only 2 ways to increase port capacity – either enlarge existing facilities or increase productivity. Stalk argues the first will be opposed by the environmentalists and communities around the ports, causing either significant delays or preventing the expansions entirely. The second will take an improvement in labour/management relations – which is unlikely given the long history of confrontation between the 2 parties.

What’s the impact on companies sourcing their products from Asia? Stalk points out that the longer and more complicated a supply chain, the more costs increase in number and size. The real killers are the “hidden” costs of a long supply chain – for example, stock outs and over stocking, and their impact on margins.

He’s run simulations comparing the use of Asian and domestic supply chains and come to the conclusion that most companies, in most categories, can gain an advantage over their competitors with either one. This could be some good news for some domestic manufacturers.

Key considerations are the level of integration and how well information is managed throughout the supply chain. In the past, companies using China-based supply chains could benefit from lower unit costs and faster cycle times. But the “China riptide” will change that. Generally, the cycle times of Asian-based supply chains are not only lengthening but fluctuations in delivery times are increasing – driving up the “hidden” costs of using them. So, domestic suppliers with fast cycle times and integrated information flows could begin to outperform the Asian chains – even if they have higher unit costs.

It has taken a while but it’s beginning to look as if the shine is coming off offshore manufacturing – at least in some situations. Stalk thinks it could take a decade to resolve the infrastructure problem, meaning the opportunity for domestic supply chains will be quite long lasting. So, offshore manufacturing is becoming another example of a strategy which seemed to fundamentally change the way things were done, being weakened and losing its benefits by events way outside the control of the companies employing it.

If you want to understand all of the strategic implications of the “China riptide” and benefit from Stalk’s suggested courses of action, you’ll have to buy the book. It’s inexpensive, easily read and, don’t forget, contains 4 more future strategies for right now. It’s ISBN 978-1-4221-2126-9, published by Harvard Business Press and available at www.amazon.ca

If you want to take issue with anything I’ve said, or share your experiences, send me an email at jimstewart@profitpath.ca or call me at 416-258-9610.

© Copyright ProfitPATH, a division of JDS & Associates Inc., 2008