01.06.2023
A more resilient Supply Chain through relocation
A new mindset is developing from globalization to realigning sourcing strategy, manufacturing footprints & distribution network
If the COVID-19 pandemic has largely affected our way of life, it has also put globalization, as we previously knew it, back at the heart of the debate.
The recognition of the vulnerability of supply chains has given impetus to a reflection on the world production organization, or rather on its reorganization. These discussions have been largely intensified by a turbulent global environment, characterized by rising geopolitical tensions, risks of supply chain disruption and now by inflation and potential recession.
As a direct result of this recent turmoil, businesses are questioning their supply chains, and a new mindset is developing from lowest-cost suppliers to higher supply chain resiliency; from globalization to sourcing diversification. Is this the end of globalization? Not quite, since a study by Allianz Research states that only 15% of companies plan to reshore their production. Nevertheless, relocation trends must be considered in its diversity, with 30% of companies favoring a nearshoring strategy (relocating their production closer to their market).
This is all the truer given that public authorities, starting with the US treasury secretary, have recently been encouraging companies to favor allied countries for the installation of production capacities: a phenomenon known as "friend-shoring".
Behind these movements is the ambition for companies to secure their supply chain, particularly by diversifying their sourcing, and ultimately to control logistical costs in the face of potential disruptions. A genuine challenge for businesses that will certainly call upon the expertise of logistics players. Our insights are based on our internal study.
China will remain the factory of the world, 40% of the respondents of GEODIS internal survey declared that they have projects to relocate part of their supply chain. However, companies expressed their intention to reinforce the resiliency of their supply chain and diversify their supply origins.
According to a GEODIS internal study, some production and sourcing sites are likely to shift from China, Hong Kong towards Western & Eastern Europe, or US/Canada, as well as Southeast Asia.
This trend illustrates the shift to a new mindset, going from lower-cost suppliers to higher supply chain resiliency, but at the same time from globalization to sourcing diversification.
Main motivations include according to a GEODIS internal study:
- Securing the supply chain (capacity and geography)
- Logistics costs
- Proximity with the customer/time to market
- Reducing carbon footprint
- But also include finding better quality suppliers, increasing turnover and margins to reduce delays, and better managing inventories.
In a more surprising way, geopolitical issues (such as the trade war between China and the US, and conflicts arising around the world) and labor costs appear to not have a significant impact on supply chain designs.
Main challenges for relocating manufacturing and sourcing
Relocate? Easier said than done! The relocation of the supply chain is not a harmless decision. A variety of different factors can slow down or prevent change, such as costs, operational aspects, the availability of manpower, long-term commitments with partners, and more.
Top obstacles to relocation:
- Heavy cost to move equipment
- Long term investment for industrial plants
- Negative impact of quality and capability
- Long time transition to switch suppliers
- No alternative in other countries
- No change in the buying market
Despite the uncertainty of the current economic environment, the decision to relocate is indeed a daunting one for companies that have already made long-term investments in industrial equipment. Moving this capital would entail high expenses, not without risks.
Despite these obstacles, the increasing global supply chain disruption risks put the question of reshoring back at the core of the debate, especially as some markets are already experiencing the effects of consumer movements in favor of greener, more responsible, and locally sourced products and services.
Partner with a logistics player to design new resilient supply chains
In a global environment with increasing risks of supply chains disruption, the relocation option is back on the table. But this decision is not harmless for companies: to meet this huge challenge and manage the risks that may surround it, companies require the involvement of logistics partners to accompany them through their relocation process.
The relocation of the supply chain is a structurally complex issue, and companies require expert advisors in this area. This support can take the form of advice about enhanced logistics and transportation networks, as well as about procedures that are increasingly respectful of the environment. This is a strong demand from both consumers and regulators.
Customers’ top 3 expectations placed on their logistics partners are:
- Propose logistics solutions focused on securing supply rather than on the lowest price
- Invest in greener supply chain solutions
- Provide upfront consultancy
Collaborating with a logistic partner, companies can smoothly achieve:
- A higher supply chain resiliency
- Keep their logistics cost under control
- Get closer to their market and gain proximity with their consumers
Interested in knowing more on how to relocate?