The global supply chains that modern companies depend on were turned upside down three years ago after COVID-19 emerged in China. The spread of the illness and efforts to slow it resulted in shortages of everything. Even today, retailers continue to struggle to keep some products in stock. Overall stress in supply chains remains high.
Because shortages, delays and bottlenecks can hurt their bottom line, many companies have been rethinking their supply chains and implementing changes.
As a supply chain expert, I have observed three major shifts in how companies manage their supply chains – changes that will significantly affect consumers and businesses alike.
Bringing supply chains home. One of the main downsides of having supply chains that span the globe is that they are more vulnerable.
That’s why companies have been working to relocate suppliers and production facilities closer to home or geographically spread them out so that they’re not so dependent on one country or region. The goal is to ensure they can withstand disruptions and maintain business continuity.
The pace of “reshoring” – shifting production and manufacturing to domestic locations – has surged in recent years. Over 60% of European and U.S. manufacturing companies expect to reshore part of their Asia production in the next three years, according to a survey conducted in early 2022.
A more recent survey found that U.S. transport and manufacturing reshored about 350,000 jobs in 2022, up 25% from the previous year.
This trend not only has support from government subsidies but retailers as well. Walmart has committed to helping its suppliers reshore by increasing its purchases of U.S.-made products by $350 billion over the next decade.
At the same time, other companies are trying to diversify their sources of supply, often away from China. India and Vietnam are popular locations.
U.S.-based Apple Inc., for example, frustrated by product delays in China, where 98% of its iPhones are made, recently started producing models in India. Overall, U.S. manufacturing orders from China are down 21% since August.
Investing in more technology. One of the biggest issues when the COVID-19 pandemic began was that companies often didn’t know what was going on with their suppliers because of poor technology. For example, prior to the pandemic, over 50% of companies didn’t communicate with or know the locations of all their suppliers, making it difficult to anticipate shortages.
Companies have since learned, if they didn’t already know, that being able to see what is happening along their supply chains is critical to avoiding and adapting to disruptions. And modern digital technologies are key to making this happen.
This includes everything from state-of-the-art software to better communication with suppliers to cloud computing for efficient data storage, artificial intelligence tools to make better decisions and robotics for automating processes.
From ‘just in time’ to ‘just in case.’ One of the great supply chain advancements in recent decades is a Japanese management philosophy known as “just in time.”
That meant carrying as little stuff in warehouses as possible to minimize storage costs, maximize efficiencies and yield higher profits. As long as there were no disruptions, the system worked.
However, “just in time” made businesses vulnerable to even small disruptions.
Companies now fearful of shortages are moving toward carrying more inventory – the “just in case” model. While having more inventory will make it less likely companies will experience shortages, it’s also more costly because it can lead to a lot of excess stock and products becoming obsolete before they’re sold.
Companies learned that the cost of empty shelves was higher than the cost of some inefficiency. In most cases, these costs will be passed on to consumers in terms of higher prices.
Nada R. Sanders is a distinguished professor of supply chain management at Northeastern University. Distributed by The Associated Press.
