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Onshoring to protect against supply chain disruption
HOW TO RESPOND
We are all well aware that the COVID-19 pandemic has caused unprecedented supply chain disruptions, slowing and in some cases halting manufacturing during the time of lockdowns and surging viral circulation. The risks of an Asia-centric supply chain and its inflexibility have now been exposed, yet this can serve as an opportunity for change. In the wake of what may appear as chaos, a time of recalibration has come.
So, what should your response be to mitigating these potential threats and disruptions? Increasing inventory might appear to be a quick and dirty solution, but that ties up cash. Think about what it costs for you to have 3 to 6 months of inventory tied up on the water, in ports, and in your supply chain.
Sourcing as many products as possible geographically close to your demand—onshoring—is perhaps the most efficient and effective way to create a strategy that minimizes potential disruption to your customers. In the past, many businesses focused narrowly on material and labor costs, perhaps offshoring to Asia for cheaper products. Increasingly these cost savings are shrinking, and in an attempt to source cheaper products companies may look to manufacturing in even less stable parts of the world. This thinking overemphasizes unit cost without taking into consideration total cost. Shipping may be the most obvious other contributor to total cost. With container shipments costing multiples of pre-pandemic rates, extended shipping times, and air freight prohibitive, a supply chain cannot be designed around assumptions of smooth sailing. Flexibility, local shipments, and shorter shipping time translates to real savings.
A manufacturer on your continent, offers the flexibility to scale up when needed and allows you to weather uncertainty in a more cost-effective manner. A May 2020 Thomas Industrial Survey found that 64% of US manufacturers are likely to bring production back to North America.
WHAT WE DO
Our strategy is, and has been, to build product where the demand is. Our factory in Florida opened in 2016 to build product for North American demand, our factory servicing Europe is centrally located in Germany, and for Asia, product is built in China and Taiwan. A reliable component supply base is in place to serve each of these locations.
The benefits of onshoring include:
- quicker, cheaper response to demand changes
- simplified regulations and standards
- ability to manage supply chain in person, face-to-face
- reduced logistics cost
- political benefits, protections, and incentives
These advantages allow us to:
- reduce the risk of inventory shortages
- maintain a scalable network of domestic suppliers
- lower shipping costs, particularly for bulky goods
- reduce our impact on the environment
- reduce working capital bound up in the supply chain
- leverage on-demand production
- reduce time-to-market
- minimize risks from start to finish
It is important to understand that recent tumultuous events should no longer be considered outliers, they are the norm. Businesses must plan for unknowns. By leveraging suppliers that are where you are, you may be able to avoid some of the perils associated with global instability.