How to reconfigure the global supply chain

Moving manufacturing out of China is one solution to minimize supply chain risk, but it doesn’t solve the root cause of disruption. To do that requires a total reconfiguration of the supply chain. (Photo: Getty Images) How to reconfigure the global supply chain Enterprise-centered and customer-centered blockchains in supply chains Truckers waiting out slow first half of year in hopes of solid demand later U.S. rail carload and intermodal volumes are down, for week ending March 4, reports AAR Don’t miss ProMat 2023’s on-floor seminars More News Process Automation Trends in SAP® Supply Chain In this webinar, we will review the latest research and discuss the top priorities for automation and the challenges it presents. All Resources After everything that happened during the pandemic and its collateral, for supply chain and procurement professionals, 2023 is a year that is slightly more “normal” in supply chain terms. Albeit, there is still significant challenges to manage (inflation *cough* *cough*), a relevant question that we should be full steam ahead in answering is: how to reconfigure the global supply chain. (Or at least, “our piece” of the global supply chain). A prevailing conclusion from the learnings of the past years is that we should move away from a “manufacturing center of the world” to be better prepared to mitigate the shortages and transport challenges that kept us awake during the past few years. Nearshoring, reshoring and supplier diversification are terms that are most talked about as the go-to strategies to implement in the coming years. To be in a better place, it is not as simple as lifting a factory elsewhere and putting it near my factory. In terms of supply chain resiliency, this would not solve the problem from the root, and would be only about kicking the problem backwards and pushing the supplier to absorb the still-existing complexity. Borrowing terms from the airline industry, we were working in a global manufacturing hub-and-spoke model, relying in a single manufacturing hub for the world. I do not believe we should move entirely to a global point-to-point model, creating as many production centers as possible. For me, the answer is in the middle, we should drive to create globally distributed hubs that still create economies of scale to distribute output. Those hubs should take care of being competitive at a global level, while avoiding fall into the protectionism trap. It should be recalled that the transfer of operations to offshore locations had as one of the main triggers a much more competitive pricing, thought to be the consequence mostly of lower wages. While being a good strategy on the spot, it became an issue when the world economy largely implemented the same strategy and ended up manufacturing in basically the same location. For a distributed hub network to be successful, the other levers to create long-term competitiveness should utilized more aggressively: knowledge (R&D, people training) and technology. In order for a new production location to be relevant and resilient over time, and stay as a long-term link in a company’s supply chain, it’s time to plant the seeds and create the pillars that would facilitate that resiliency: • Look for suppliers or products that are relevant to other industries apart from yours, this will allow you to collect the demand that meets the level to call for (suppliers’) investments. • Review the above not only for your immediate suppliers, but also for tier 2 and tier 3 suppliers. Opportunities may lie in there and would help to compact the supply chain more comprehensively. • Ensure that there is potential and interest in pulling the other levers that drive competitiveness: technology and know-how. Given that the low-wages card cannot be dealt, a partner that keeps this pillar as a long-term strategy helps to maintain their long-term resiliency. • People are also key. To find them, guide yourself to regions where the industries require similar skills, or the workforce can be retrained to gain the skills needed to execute the type of operations you need to be executed. • Gain more insights and knowledge of how to excel in the production of the product needed. (Why is Apple now able to develop new suppliers with relatively lower effort compared to when they first launched their products? Because they maintained not only the IP of their products, but also the know-how of how to manufacture them.) • And perhaps most important of all: be patient, consistent, maintain pace and keep a long-term vision. Reconfiguring the world […]

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