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Focus on Supply Chain Resilience Increases Amid Global Risks

7/5/2023
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Supply chain optimisation is one of the key trends in the manufacturing sector that will shape the global manufacturing landscape over the next decade. Increased economic uncertainty, rising geopolitical tensions, the need to improve operational efficiency and still prevalent transportation bottlenecks drive the need to improve supply chain resilience to better withstand future shocks.

Both manufacturing and service sectors aim for improved supply resilience as challenges persist

Despite the improvements in production output and trade flows, companies continue to feel transportation disruptions. 51% of companies globally felt extensive transportation disruptions over the last 12 months, according to the Euromonitor International Lifestyles Survey 2023; the result of ongoing transportation bottlenecks, economic volatility and rising geopolitical tensions.

Persistent transportation bottlenecks and geopolitical tensions drive the need to improve supply resilience

Source: Euromonitor International

Unsurprisingly, building supply chain resilience has become one of the top priorities for companies. 56% of companies globally indicated that they plan to invest more in supply chain resilience according to the Euromonitor International Sustainability Survey 2023. Industries with long supply chains, such as packaging, as well as industries highly reliant on efficient transportation networks, such as apparel or retail, are driving this trend. Apple is one of the key examples, as it builds new production capacity in India to diversify supply risks.

Companies in the services sector are also aiming to better shield their business activities from future disruptions. Approximately half of companies in the leisure, foodservice and travel sectors are planning to improve their own supply chain resilience. For example, hotel chain Hilton plans to utilise double sourcing from SME suppliers by 2030 as part of its sourcing and procurement strategy. More diverse supplier networks will also contribute to lower sourcing risks and add greater operational flexibility.

Supply Chain Resilience chart 1.svgChanges in supply chains to drive production localisation trend

To build resilience in future supply chains, companies are implementing strategies such as production localisation and regionalisation of supply chains, while also aiming to create alternative transportation networks. Such actions are expected to help diversify supply chains, reduce production risks and improve operational flexibility.

Anticipated production localisation of critical industries set to benefit developed economies and support suppliers

Source: Euromonitor International

The production localisation trend is the most evident in developed economies. For example, approximately 210,000 new jobs in the US were announced through reshoring initiatives in 2022, up by 40% from 2021 according to the Reshoring Initiative - the association helping US manufacturers with production localisation efforts. Similar trends are expected to continue over the next five years as the US and EU markets continue to encourage production localisation of batteries, microchips, B2B electronics and pharmaceuticals.

Production localisation efforts can also benefit other supporting industries in the North American, Latin American and European regions as higher production volumes will lift demand for input components. For example, higher production output of batteries would benefit metal products, chemical goods, and rubber and plastic industries, which play an important role in the supply chain.

Supply Chain Resilience chart 2.svg

Diversification of production and sales networks will remain important

Despite the improved resilience of supply chains, higher production localisation also presents new challenges for companies. For instance, some of the production efficiencies that arise from free trade and diversification can be lost and result in higher input costs for manufacturers. Highly-localised production also presents supply challenges for companies as they become subject to economic fluctuations in certain regions and lose some of their operational flexibility. Macroeconomic factors such as labour supply and costs, energy price pressures, borrowing costs or regulatory environment also need to be considered when planning supply chain improvements.

Diversified production and sales channels will remain crucial to successfully navigate the challenges

Source: Euromonitor International

To navigate these challenges, companies will need to balance production localisation efforts and keep a certain degree of diversification in the production, especially in sales networks. Identification of the key weak points in the supply chain, analysis of the macroeconomic factors, greater involvement of employees in the decision making and closer collaboration with industry peers can help to ease the transition process and develop a winning strategy.

Further insights on the manufacturing sector and supply chain trends are available in the Supply Chain Optimisation strategy briefing.

 

 

 

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