Thought Leadership Contribution
What is next for Supply Chains? — Realigning Supply Chains The awareness that supply chains are strategic and critical has firms asking themselves how they can build resilience or risk mitigation. There are different approaches to doing this writes Tom Craig President LTD Management, Pennsylvania, USA, a leading authority and professional consultant on logistics and supply chain management and regular contributor to Global Supply Chain—Editor.
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epending on where you are in the world, you have experienced China-US trade issues, the global pandemic, and Russia’s attacking Ukraine. Manufacturers, retailers, and wholesalers/distributors are dealing with high ocean rates, delivery delays, and sourcing changes that have impacted inventory/product availability, procurement, and more. Also, behind much of the freight rates and operations issues is high demand that created volumes exceeding the capacity of logistics providers to handle it. Recognition has arisen that we are in a time of continuous supply chain disruption. Add in climate change, geopolitical concerns, and other issues that can affect business continuity. One is to reduce the products they carry, SKU rationalization. Another is to carry more inventory, even overstock. Given all the items a firm may carry, this may challenge warehouse capacity, throughput, and inventory turns, sometimes called inventory rich and cash poor. Another way is moving closer to end markets where customers are. This means discussions about potential procurement, sourcing, manufacturing, and supply chain changes and shifts. This has become the reshore question Companies are asking themselves about what they make and/or buy and where it should be done. The challenges that companies have experienced go against traditional risk aversion with change. Some talk in terms of deglobalization
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as a way of building resilience. It is labeled as reshore, onshore, nearshore, and same shore. It raises the question whether decades of low-cost products will be undone by two years of supply chain disruptions? Also, will a firm’s changes will be an allor-nothing? Or is there a hybrid path? No matter, what we are talking about is not shifts. No matter the terminology, it is realigning supply chains. This includes sourcing, production, procurement, and end-to-end supply chain management. The above sets the stage for what comes next—what to do and how to do it. There are two parts to a realignment project:
Step 1. Call it Phase 0. This is what you are thinking as to reshoring. Do you want to move it onshore, nearshore, or stay same shore? There are points to consider which can vary by industry, market sector, or type of business—manufacturing, retail, wholesaler/distributor. These can include: How critical are your products? This showed early in the pandemic with PPE, personal protective equipment. Much of these items were made in Asia which had shutdowns. That had serious implications. How valuable are your products? There are costs to making changes. Generating a return on investment, or ROI, reflects the value of what you want to shift. In turn, this dynamic has a different standing with low-value items. A classic battle. Somewhere in all this
will be the labor vs capital issue. The labor reflects wages, training, education, supply of employees, and related topics. Where do you put your money? Capital ties to manufacturing and to building resilience through technology as compared to engaging people. The length of your end-to-end supply chain. The shorter it is, the easier it may be to adjust to events. Length is also a factor in the nonlinear, complex supply chain.
Step 1.5: There may be less complicated options. These involve your suppliers. Diversify: This can be defined as a type of reshore. Look at your suppliers and transport/logistics providers, especially the ones that are very important. Can you reduce your use and dependence on them? That can mean you pay higher prices by reducing your volume commitments. But it will also spread your risk and improve resilience. Relationships: A takeaway from the last two years is to create supplier relationships that go beyond price and traditional buyer-seller connections. This can be easier said than done. But continuous supply chain disruptions have shown the need for it.
Step 2: This is your analysis or assessment. It presents an opportunity to see and understand your end-to-end supply chain—its size and complexity. You are looking at a range of options— no changes, moving production or
