Regional supply chains, near-shoring manufacturing, inventory management, warehousing as a market tool: oldies but goodies are making comebacks in the new, post Covid-19 world.
Life has changed drastically the last few months since this novel Coronavirus disrupted the world as we knew it. Supply Chain Management is making a comeback on what is trending after its last visit on the charts back in the last century.
The trend from global to regional supply chains has been going on for a while. One reason is of course President Trump’s trade war with China. Interestingly, this has demonstrated more of the difficulties to relocate complicated supply chains from the dominating supplier clusters in China. There are so many components only available there that it is not only cost-prohibitive to moving technologically complicated production to North America or Europe. China is very deliberately undergoing a Japanization, in the sense that it used to be the place where all the cheap, low quality stuff was made and now it is becoming the high-tech hub. The tariffs and trade frictions have anyway started a motion towards more regional supply chains.
It has also demonstrated how developed the regional supply chains in east Asia are. China’s Silk Road project will undoubtedly exacerbate the growth of the Greater China supply chains. The main market may well be in Asia.
The tariffs and the COVID-19 crisis have brought the forgotten artform of scenario planning and risk mitigation back into the supply chain management world. Check in with the Site Selection Guru Bob Hess at Newmark for details on how to do this.
One answer to the risk mitigation is “near shoring” – regional supply chain in the own country or a safe region i.e. within EU or within the USMCA block. Establishing safe and resilient, regional supply chains for medical equipment is on top of many procurement specialists’ agenda.
We know from our clients with assembly/production in North America that a lot of companies are trying to find or develop suppliers of critical components within the USMCA. This is a process that takes time and the result will not be visible short-term but certainly over time. Most likely is that this will materialize in the form of regional clusters like you see for furniture in Western Michigan, cars in the Midwest or pharmaceuticals around Boston and Raleigh.
A third area for regional supply chains is products that can be made by robots or other forms of automated production. This is driven by the increasing salaries in China and the decreasing costs for robots combined with the ever-increasing capabilities and versatility they have. We see more and more very successful and growing companies built on automated production in both Europe and North America. It is not far-fetched that they will help form the foundation for regional supply chains.
The most important factor driving the growth of regional supply chains is psychological and materializes in attitude. Where offshoring to low-cost China was a default in the 1990s and 2000s, it is now mainstream to think sustainability, resilience and creativity. Enter regional or even local supply chains. Farm-to-Table or Made-in-your-County.
By Håkan Andersson, CEO Establish Inc NY & Lars Brunius, Partner at Establish Sweden