Disruptions and change are constant – but resilience comes from capability. In this Supply Chain Byte, Lisa Anderson explains why manufacturers must focus on building capabilities for regional supply chain independence.
The war in Iran and the closure of the Strat of Hormuz have highlighted the need for regional supply chain independence. Asia is highly dependent on oil and liquified natural gas from the Strait of Hormuz, thereby potentially impacting their ability to run manufacturing, logistics, businesses, and support electricity needs. The U.S. is energy independent as a country which provides great flexibility even if still impacted by the global price of oil. However, the state of California is not. California has been shutting down its energy production and refining capabilities over the last few decades. Currently, California imports 60-75% of their oil with 25-30% coming from the Middle East. To add complexity to the situation, not all oil is created equally. California has different specs, fuel standards, and operational / regulatory constraints.
Thus, the Trump Administration deployed the Defense Production Act to restart oil production in California to increase supply and realign with demand. In addition, they provided an exception to the Jones Act which requires any cargo transported between two U.S. ports must be carried on vessels that are built, owned and flagged in the U.S., primarily with U.S. citizens. Thus, additional oil could flow from Alaska to California and fertilizer (related to oil and natural gas) and related inputs can be more easily transported to wherever is needed to ensure regional supply.
What can we learn from this situation? Proactive companies are thinking ahead – before events occur such as the war in the Middle East, port strikes, etc. They are transitioning to regional supply chains where they have greater agility and control with changing conditions, reduced exposure to global geopolitical risks, and quicker response time to changing customer requirements. Since you are only as strong as your weakest link in the supply chain, you must be aware of risks impacting your end-to-end supply chains and have mitigation plans, response plans, and longer-term strategies to proactively address. Our best clients have an AI-enabled SIOP (Sales Inventory Operations Planning) process that responds resiliently to changing business conditions, evaluates trade-offs, optimizes results, and recommends changes (make vs buy, sourcing additional suppliers, offload, building manufacturing capabilities, etc.) to ensure success.
It’s not about redesigning networks – it’s about developing the ability to operate, respond and scale while understanding and navigating regional limitations and disruptions.
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Smart Product Redesign for Regional Supply Chains & Automation