Supply chains were already on shaky ground even before COVID-19. But suddenly the ongoing theoretical discourse about quasi-shoring and re-shoring, resilience, flexibility and transparency took on new urgency and new actions.
Oden's 2021 State of Manufacturing report shows how supply chains are top of mind for most manufacturing executives. There is no quick and easy solution, but there are solutions. In the survey, industry leaders identified the obstacles they have encountered and the actions they are taking to ensure their supply chains are resilient and (as much as possible) disruption-proof and future-proof.
Given these issues, it probably isn't surprising that many manufacturers, more than half, are making significant changes to their supply chains. However, 11% are making regional-specific changes and a third are waiting for peaks to normalize before making changes.
So what are 50% or more of manufacturers doing? 71% are redesigning their supply chains with technology, and 58% are increasing their supplier base. 55% ask for greater transparency from suppliers. And 45% are re-slipping or close to shoring up – we are definitely seeing a strong push to de-risk supply chains by moving them closer to home.
Bringing the industry back to the United States could, according to the McKinsey Global Institute, mean $4.6 billion in trade. This is a combination of economic factors, such as lower costs and higher productivity, says Eric Chewning of McKinsey & Company, and “non-economic” factors. “We increasingly see non-economic factors, whether it’s export controls or national security concerns, creeping into supply chain decisions,” says Chewning.
Reshoring and nearshoring mean manufacturers can reduce production to be closer to their customers, says Brian Shepherd, senior vice president of software and controls at Rockwell ROK -2.2% Automation. Many industries, such as automotive, have done this to be closer to final assemblers, but he is seeing this idea of microfactories spread to others. And that will require some adjustments. “I think it's an important trend in the industry because there's a knack for getting efficiencies in small production operations that companies are going to have to learn how to do,” he says.
Chewning says McKinsey research shows the same trend. “We call this the flexible manufacturing archetype, but where there is high value but low volume,” he says.
Jane Barr Mowad, vice president of global industry at Rockwell, agrees that this is now a big push driven by macro trends. This is an expensive and complex undertaking, but also a necessary one. “There is a clear shift from good to good, we need to do this,” says Barr Mowad.
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Around 40% of respondents said they prioritize investments in the supply chain. They are looking for greater flexibility, resilience, sustainability and better processes to launch new products on the market.
“Manufacturing has been a rollercoaster,” says Paolo Guglielmini, president of Manufacturing Intelligence at Hexagon. He says Hexagon is rethinking its approach to supply chain. Where price was once the main concern, the focus has shifted to ensuring the quality of suppliers' products. In response, manufacturers are increasing efforts to help suppliers improve their quality.
They are implementing internal processes to verify supply chain quality and ESG adherence and providing advice and a toolkit to suppliers to help them increase their capabilities. “We are trying to reshape an inbound, outbound business for our suppliers and customers. And that's been huge, because there's a lot of growth. Therefore, it is becoming a bottleneck to bridge the gap between bookings and shipments. This is helping us enormously,” she says.
Ted Jackson, executive vice president of operations at Novolex, says the company is launching a new planning system to manage and anticipate changes in the supply chain. “We are in the process of implementing a planning system that will actually help with these types of problems and others,” he says. “It's a common platform to really sort out the connections and condense the planning cycle for contingencies like this, not just to help us anticipate spikes in demand and production capacity, but to better anticipate where we need strategic inventory, where we need to think about follow-on investments and perhaps even future acquisitions.”
Manufacturers are now realizing, probably more than ever, the value of an agile supply chain approach. Solutions that allow companies to make the best decisions, quickly and without sacrificing the quality of the final product or relationships with their suppliers and customers, will divide those who will survive future disruptions and those who will not.
“Being able to quickly model scenarios across a national and international production network is a key element of how we are trying to build some resilience into our supply chain,” says Jackson. “It’s a big change from how we’ve approached these types of scenarios in the past.”
