If you still think that the globalization of supply chains is only beneficial, then it is the right time to reconsider your thoughts.
Brief History of Globalization
Globalization started a long time ago. The ancient Silk Road was one of the first global supply chains. Globalization has gone through several waves since then. A major wave happened at the end of the 18th century with the first industrial revolution and all its many inventions. Strong countries were able to apply industrial technology to mass-produce products and use international transportation to their advantage to serve customers all over the world.
The globalization that we know today accelerated after World War II. As we can see in the chart below, the trade openness never exceeded 50% before 1995, the year of WTO (World Trade Organization) creation with its free-trade agreement.
The tradability of goods and services and the efficient international transportation have allowed companies to reduce production costs, delegate some parts of the business or projects to subcontractors, and manage their capacity by outsourcing some of their activities.
These trends have engendered more complex supply chains with many tiers and therefore end-to-end visibility has become a big challenge.
Supply Chain Disruptions
If your current supply chain lacks visibility and resiliency, then prepare yourself for unpleasant surprises and disruptions. In the last decades, we saw so many supply chain disruptions that taught us many lessons on the importance of supply chain resiliency and visibility. Yes, Covid-19 is one of them, but it was just the straw that broke the camel’s back.
Supply chain disruptions are not something new. Many past events have caused immense disruptions like, for instance, the 2011 Tōhoku earthquake and tsunami in Japan, the intense monsoon season in Thailand the same year, and many other natural and human-made disasters, geopolitical events, and series of trade wars.
Reshoring the Supply Chain
We can now understand why so many companies are considering sourcing and reshoring all or parts of their supply chain locally and sometimes nearshoring. In fact, supply chain disruptions are not the only driving factor for that consideration because localization has even more.
Local manufacturing/sourcing can lead to less risk exposure, lower transportation costs, fewer tariffs and taxes, more flexibility and shorter lead time, less inventory, more control over operations, more visibility, and most importantly, a greener supply chain with easy circularity and, in some cases, more satisfied customers.
Of course, these benefits come at additional cost and time. For instance, while it depends on how much of a supply chain is moving, it requires a massive capital cost to build new facilities and buy new equipment. It is also sometimes hard to find labor locally with the necessary skills and expertise.
The localization decision-making process is long and complex. Below are four components that must be studied and effectively considered when thinking about reshoring. These are 1) Efficiency; 2) Resiliency; 3) Responsiveness; and 4) Sustainability. The objective is to find a balance between all four.
Using Technology
Technology can help supply chains achieve the full potential of localization in many ways. Manufacturers, for instance, can localize their production and reduce supply chain complexity by using 3D printing where fewer entities in the supply chain are needed.
Other benefits of additive manufacturing are less inventory with on-demand production, less supply chain complexity, increased customer satisfaction, greater customization, and faster time-to-market.
Blockchain combined with 3D printing can create a homogeneous mix. In the traditional manufacturing process, a company mass-produces a large quantity of a specific product and then delivers it to multiple outbound customers in different countries. But with the use of 3D printing, a company delivers data instead. It only designs the product and then puts that 3D design file in a database where customers in different locations have access to it, so they can produce it locally.
The problem with this approach is that 3D product designs with other information are the valuable intellectual property (IP) of a company. Here is where Blockchain comes into play. It has the potential to make 3D printing safer by solving IP and data security issues.
Blockchain can, for instance, help lock the design file. Therefore, no modification or manipulation can be made unless authorized. Blockchain can also ensure the traceability of parts and products manufactured, thus reducing counterfeit.
The Future of Supply Chain
There is no single and specific rule to decide if reshoring works for a supply chain or not. It depends on many factors like industry, product type, customers, and specifications of the local country. Maybe food, energy, and medical supply chains can be prioritized to be localized since they are critical so countries will not be dependent on others to fulfill basic needs. But what about other sectors and industries?
Relying on fully localized supply chains makes no sense for global companies. Because quite simply, they will not be able to satisfy all their needs. But, a mixed model where some parts of their supply chain are strategically localized and others globalized can be a better option. Diversification of suppliers base, and not relying only on the “World’s Factory”, China, is a good option for reducing risks and mitigating disruptions.
Final Thoughts
Most likely, we will not see entirely local supply chains in the future, but what supply chain professionals should know is that today and tomorrow’s globalization is different from that of the last 20 years. Many factors that enabled the success of globalization in previous decades (such as predictable demand forecasting and price stability) are no longer existent. So, leaders must carefully consider localization opportunities to manage risk and provide resiliency. Successful companies take a big picture perspective, and a long-term view, as they create the right mix of global and local supply chains to support their businesses.
See also how food supply chains can be localized with the help of Vertical Farming: https://www.scmglobe.com/vertical-farming-for-a-better-food-supply-chain/.