Supply Chain Management
For most of the U.S. and European companies Asian countries have played a key role in their supply chain companies have focused their Supply Chain Strategies for the last few decades. Until now Asian countries have offered significant cost savings over the regional supply chain options.
Recent rise in protectionism however is causing the Global Supply Chain Leaders to feel in a state of arrest by their “Asia focused” Supply Chain strategies.
Reduction in the cost advantage offered by Asian countries
Summary of various market reports suggest that percentage of global manufacturing done in Asia (measured by value added) jumped from 30% in 2000’s to 48% in 2015. This was primarily driven by the cost advantage the developing countries offered over the past supply chain options. However, as the cost of manufacturing in the developing countries has gone up significantly. In China labor costs have increased 15% to 20% annually without compensating productivity growth in manufacturing. Also discovery of cheap energy through hydraulic fracturing in North America, and the ever increasing complexity and cost of managing global supply chains. In early 2000’s manufacturing in China offered up to 15% cost advantage however as of 2016 that difference has been reduced to less than 2%. These trends are fueling the re-shoring of the supply chain.
Technology and innovations in the manufacturing processes
Industry 4.0 and related advancements are resulting in a “robotic revolution” in the manufacturing industry. Industry experts project that over the next 10 years robots will perform between 40 to 50% of the tasks performed in a manufacturing facility. This will have a significant impact on the manufacturing cost and will further fuel “re-shoring” of manufacturing and supply chains. Experts also believe that higher demand will make robots and other process automation easy to acquire breaking the “capital arrest” challenge many executive leaders face today.
Rise of protectionism
Brexit (European union without United Kingdom) and Donald Trump’s views on trade policies are the two great examples if the recent political changes which will end up impacting the manufacturing industries globally. Only history will write the tails of the true impact of these momentous developments.
Talking about U.S. specifically, over 19,000 manufacturing firms and millions of jobs associated with those firms were lost in the 2000’s. Rebuilding the infrastructure, capabilities and skills will be supply chain leaders first challenge.
Many large US companies are not able to find local supply solutions for critical products. Industry leaders believe that a ecosystem of capable manufacturers will have to be developed to support “re-shoring” activities.
Given this emerging new world, manufacturers should take these steps:
- Evaluate your existing and future customer footprint and map it against your existing manufacturing and supply chain capabilities.
- Analyze the total costs of supply for each alternative location.
- Explore advanced manufacturing technologies and possibilities, especially flexible robotics and automation and understand how these change the equation.
- Proactively try to rebuild your atrophied supply-chain ecosystems, if possible in conjunction with similar manufacturers and large customers.
- Engineer your supply chains to be resilient to further shifts and instabilities in trade policies and exchange rates.
Actions like these industry experts believe are necessary to avoid the supply chain arrest and business continuity issues.
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The author, KetanDeshpande, lives in Minnesota and writes about a variety of topics in his blog such as global economy, market and industry trends, successful strategies for businesses, and others. Leveraging his global strategic leadership experience from the manufacturing industry to offer insights in to how businesses can meet the sustainable growth and profitability goals.
Ketan Deshpande is also passionate about sustainability and renewable energy; he curates and shares latest updates in his blog posts. Recently the Southern Minnesota Municipal Power Agency(SMMPA) of Litchfield, Minnesota, endorsed Ketan Deshpande for an energy conservation project.
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