Supply Chains Moving from Global to Local With Resiliency
Smart proactive companies are moving supply chains from global to local – or regional at a minimum. Yet the best companies are doing that while also focusing on resiliency. Thus, global is not disappearing; however, a close scrutiny of global partners and friendly nations is a must for revamping the supply chain with backups and resiliency intact. Look no further than the news for the reason why. Risks are immense with the lack of control of strategic items and talent. Our best clients are getting ahead of the pack with proactive strategies to move towards local with resiliency.
De-risking Fueling the Shift
De-risking is fueling the shift. For example, the Netherlands has gotten caught up in the middle of a rat’s nest of the global supply chain. Rewind several years and Philips spun off the semiconductor manufacturing arm Nexperia to a Chinese owned company, Wingtech Technology. Because they are closely associated with advanced computer chips related to artificial intelligence and required for automotive, consumer electronics and industrial equipment, the Netherlands seized ownership to avoid a forced move to China. This is exactly what happened to GM’s rare earth division that was sold to China several years ago, and so this move was to prevent the same end result for Nexperia.
China responded by putting export restrictions on critical minerals required to produce advanced semiconductors, solar, and military global supply grade electronics, exposing the heightened risks of dependency on a non-friendly country in your global supply chain. For Nexperia, 15% of revenues are stalled to support China and disruptions throughout the automotive supply chains are of increased risk. Thus, taking stock of your end-to-end supply chain risks is essential.
Local and Regional Manufacturing on the Upswing
According to the Reshoring Institute, a survey of contract manufacturers, 43% have reshored for customers or are actively executing reshored orders. In addition, 16% are currently quoting on reshoring. With that said, there is also significant investments and expansions occurring as companies look to mitigate the impact of tariffs, expand local and regional capabilities, and beat competitors with speed and innovation in the marketplace. Read more about these significant opportunities in our recent article, “Positive Signs for Manufacturing on the Horizon“.
Resiliency Required for Success
The best clients are pursuing dual paths. We will not go from global to local overnight – or completely. Instead, uncommon common sense will win the day. Thus, companies must build resiliency into the mix. For example, larger companies with a global footprint will move production to where it makes the most sense to support customer requirements at the lower cost with the least amount of risk. They leverage a SIOP (Sales Inventory Operations Planning) process to determine how to allocate production to optimize customer value and EBITDA, proactively predict changing conditions, evaluate what if scenarios, and pivot resiliently. Most produce in Asia for Asia, in North America for North America, etc. However, if they transition from a higher tariff country to a lower tariff country to mitigate costs and run into a disruption, they can quickly pivot and support the customers’ needs from an alternate facility or send high-skilled talent/ labor to where its needed. To learn more about successfully rolling out SIOP, download our complimentary eBook, SIOP: Creating Predictable Revenue and EBITDA Growth.
For smaller companies, they must rely on innovation and creativity. For example, clients have built strategic partnerships with companies in friendly countries that will support changing needs. They develop win-win partnerships with trust and commitment. Others build public-private partnerships and collaborative partnerships with competitors to ensure risk events are covered and customers will not be negatively impacted. They also utilize artificial intelligence and advanced technologies to create agility and visibility to make forward-looking decisions resiliently and scaling as needed. To learn more about how to use AI and advanced technologies to pivot your supply chain resiliently, download our eBook, AI & Advanced Technologies: How AI Powers Smart Supply Chains and Smarter Decisions.
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Maximizing Performance and Margins with SIOP