Increased tensions between the two largest economies, a recent war, and a pandemic have caused the economic and geopolitical world order to shift. These tensions have increased supply chain risks and caused companies to evaluate strategies that reduce reliance on certain regions. It is a tall task for any economy in the world, and especially for the US, which for example is reliant on
Diversifying the supply chain comes with benefits, but is no easy task. It is frequently a costly endeavor, increasing the cost of goods and requiring significant investment. If it were more profitable and efficient, more companies would implement it. Below are some of the key areas to watch out for while reshoring production or diversifying your supplier base.
1. Where are my suppliers' suppliers?
Let's say Walmart wants to buy more US-manufactured stuffed animals. If the eyeballs, nose, fabric, and stuffing are all made in
2. Is the global transportation and power infrastructure in place?
Additionally, many parts of the globe are not able to supply the population centers that might be ideally suited for a factory with reliable electricity and gas. This adds risk of lost production. Significant investment is required to build a strong infrastructural ecosystem, and that investment usually requires government support.
3. Can my organization manage a diversified supply chain?
Companies have made significant investments into their organizations to build the technical know-how required to manage a single source supply chain—whether that be supplier quality or purchasing department. That organizational know-how would have to be duplicated in more regions.
4. Can I find people to work in my factories?
Labor shortages in the US have been well-documented. Finding skilled employees to fill up a factory in the US is a challenge. Fed Chair
5. Can I find space to build my factory?
There is currently a 3% vacancy rate for industrial real estate in
6. Am I willing to absorb increased inventory?
Companies that diversify their supply chain must financially and operationally be prepared to manage the complexity of more inventory piles around the globe.
In conclusion, supplier diversification is beneficial to obtain control and maintain continuous supply, but it comes with huge investments, upskilling, and added costs in a competitive environment. It is crucial for companies to ensure people, processes, and systems are upgraded and a detailed actionable plan is in place when ready to execute.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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