Pilot David Parsons and 11-year-old Arturo Mendoza (right) fly over the harbor in Long Beach, California, USA. PHOTO CREDIT: SCOTT VARLEY/DIGITAL FIRST MEDIA/TORRANCE DAILY BREEZE VIA GETTY IMAGES
After the outbreak of the new crown epidemic three years ago, the global supply chains on which modern companies rely were thrown into chaos. The widespread spread of the new respiratory disease and the many measures countries have taken to slow the spread of the virus have led to stock-outs of everything from toilet paper to prescription drugs to refrigerators and semiconductors. Even today, retailers can’t keep certain products in stock, such as Tylenol and everyday items like eggs. The supply chain as a whole is still under tremendous pressure.
Supply shortages, delays and supply chain congestion can affect a company’s revenue, so many companies that have not faced bankruptcy during the new crown epidemic have been rethinking their supply chains and adopting reform measures in the hope of improving supply chain resilience.
As a supply chain expert, I see three main shifts in the way companies manage their supply chains that will have a significant impact on consumers and companies.
1. Relocate supply chains back home
One of the main downsides of a globalized supply chain is that it is more vulnerable to problems outside a company’s control, such as an earthquake hitting a key supplier or a shutdown of a factory due to a lockdown.
As a result, companies across all industries are trying to move suppliers and production facilities closer to their home countries or geographically spread out across regions so as not to become overly dependent on one country or region. The purpose of this is to ensure that the company can withstand the impact of supply chain disruption and guarantee the continuity of business.
The process of transferring production and manufacturing operations from overseas factories back to China is also known as “manufacturing reshoring”. In recent years, the pace of manufacturing reshoring has accelerated significantly. According to a survey conducted in early 2022, more than 60% of manufacturing companies in Europe and the United States expect to have some Asian manufacturing operations return in the next three years.
A recent survey found that U.S. transportation and manufacturing reshoring created 350,000 jobs in 2022, a 25% increase from the previous year.
This trend has not only been subsidized by the government, but also supported by retailers. Walmart, the world’s largest retailer, has pledged to help reshoring suppliers, boosting purchases of U.S.-made products by $350 billion over the next decade. In the UK, a survey of 750 small firms found two in five were considering domestic manufacturers to avoid supply chain disruptions and high freight costs caused by the coronavirus pandemic.
At the same time, some companies are trying to diversify their supply sources, often from China to other regions, with India and Vietnam being popular destinations.
For example, the US company Apple (Apple) recently started manufacturing some models of its mobile phones in India. 98% of Apple’s iPhones are made in China. In addition, Foxconn, Apple’s largest supplier, has agreed to expand its production operations in Vietnam. Since August 2022, overall U.S. manufacturing orders in China have fallen by 21%.
European automaker Volvo (Volvo) announced in July 2022 that it plans to build a factory in Slovakia, the company’s first factory in Europe in 60 years. Leaders from the United States, Mexico and Canada are meeting to discuss measures to encourage local investment that could lead to a reshoring of manufacturing.
2. Increase investment in technology
One of the most serious problems revealed at the beginning of the COVID-19 outbreak is that companies often do not know the status of their suppliers due to poor technology. For example, before the new crown epidemic, more than 50% of companies had never communicated with all suppliers, or did not know the specific location of suppliers, which made it difficult for companies to predict supply shortages.
Companies have realized now, or since the onset of COVID-19, that having access to the real state of their supply chains is critical to avoiding and adapting to supply chain disruptions. And to do that, modern digital technology is key.
These include the use of advanced software to communicate more effectively with suppliers, the use of cloud computing for efficient data storage, the use of artificial intelligence tools to make more rational decisions, and the use of robots to automate processes. A survey by strategic consulting firm Hackett Group found that implementing these new technologies is a top priority for companies worldwide in 2022.
3. Change from “just-in-time production” to “guaranteed production”
An important advancement in the supply chain field in recent decades is a Japanese management philosophy – “just-in-time production”.
While the essence of this management philosophy is to reduce waste, companies interpret it as having low or no inventory. This means minimizing warehouse inventory to minimize storage costs, increasing efficiency, and resulting in higher profits. This system works in the absence of supply chain disruptions.
However, companies that practice just-in-time production are vulnerable to even small supply chain disruptions. The company’s ultra-lean supply chain means that supply chain disruptions from COVID-19 and other causes are so magnified that even a small disturbance can turn into a big problem.
Companies now worried about supply shortages are starting to build up inventories. Since the outbreak of the new crown epidemic, many companies have shifted from “just-in-time production” to “guaranteed production” model. While stockpiling can reduce a company’s chances of running out of supplies, it’s more costly because companies hold large excess inventories and products can become obsolete before they’re sold.
But like other trends, this trend is unlikely to change anytime soon, despite higher costs for companies. In other words, companies have learned that the cost of empty shelves is higher than the cost of a certain level of inefficiency. In most cases, those costs are passed on to consumers in the form of higher prices, which may not be good news for inflation-stricken consumers.
This article is part of Global Economy 2023, our series on the challenges facing the world in the year ahead.
The author of this article, Nada R. Sanders, is a Distinguished Professor of Supply Chain Management at Northeastern University.
This article is reproduced from The Conversation website with permission from Creative Commons. (Fortune Chinese website)
Translator: Liu Jinlong
Reviewer: Wang Hao
The global supply chains that modern companies depend on were turned upside down three years ago after COVID-19 emerged in China. The spread of the new respiratory illness and efforts to slow it resulted in shortages of everything from toilet paper and prescription and drugs to refrigerator semiconductors. Even today, retailers continue to struggle to keep some products, including household items like Tylenol and eggs, in stock. Overall stress in supply chains remains high.
Because of shortages, delays and bottlenecks can hurt their bottom line, many companies that didn’t go bust during the pandemic have been rethinking their supply chains and implementing changes to make them more resilient.
As a supply chain expert, I have observed three major shifts in how companies manage their supply chains – changes that will significantly affect consumers and businesses alike.
1. Bringing supply chains home
One of the main downsides of having supply chains that span the globe is that they are more vulnerable to problems outside of a company’s control, such as an earthquake that strikes a key supplier or a citywide lockdown that shuts down factories.
That’s why companies in every industry have been working to relocate suppliers and production facilities closer to home or geographically spreading them out so that they’re not so dependent on one country or region. The goal is to ensure they can withstand disruptions and maintain business continuation .
The pace of reshoring – the process of shifting production and manufacturing to domestic locations from overseas factories – has surged in recent years. Over 60% of European and US manufacturing companies expect to reshore part of their Asia production in the next three years to, according to a survey conducted in early 2022.
A more recent survey found that US transport and manufacturing reshored about 350,000 jobs in 2022, up 25% from the previous year.
This trend not only has support from government subsidies but retailers as well. Walmart, one of the world’s biggest retailers, has committed to help its suppliers reshore by increasing its purchases of US-made products by US$350 billion over the next decade. UK, a survey of 750 small businesses found that 2 in 5 are considering switching to domestic manufacturers to avoid COVID-19 disruptions and high shipping costs.
At the same time, other companies are trying to diversify their sources of supply, often away from China, which until recently was regularly locking down whole cities to maintain its now-lapsed zero COVID-19 policy. India and Vietnam are popular destinations.
US-based Apple, for example, frustrated by product delays in China, where 98% of its iPhones are made, recently started producing models in India. In addition, Foxconn, its largest supplier, agreed to expand production in Vietnam. Overall, US Manufacturing orders from China are down 21% since August 2022.
In Europe, carmaker Volvo announced in July 2022 plans to open its first European factory in 60 years in Slovakia. And leaders of the US, Mexico and Canada are meeting to discuss ways to encourage more investment in the region, which may result in more reshoring .
2. Investing in more technology
One of the biggest issues when the COVID-19 pandemic began was that companies often didn’t know what was going on with their suppliers because of poor technology. For example, prior to the pandemic, over 50% of companies didn’t communicate with or know the locations of all their suppliers, making it difficult to anticipate shortages.
Companies have since learned, if they didn’t already know, that being able to see what is happening along their supply chains is critical to avoiding and adapting to disruptions. And modern digital technologies are key to making this happen.
This includes everything from state-of-the-art software to better communicate with suppliers to cloud computing for efficient data storage, artificial intelligence tools to make better decisions and robotics for automated processes. , according to strategic consultancy the Hackett Group.
3. From “just-in-time” to “just-in-case”
One of the great supply chain advancements in recent decades is a Japanese management philosophy known as “just-in-time.”
While the essence of the philosophy is eliminating waste, businesses reduced just-in-time to the idea of having low or even zero inventory. That meant carrying as little stuff in warehouses as possible to minimize storage costs, maximize efficiencies and yield higher profits. As long as there were no disruptions, the system worked.
However, just-in-time made businesses vulnerable to even small disruptions. Companies’ super-lean supply chains meant the disruptions caused by the pandemic – and pretty much anything else – were amplified considerably, making even a hiccup potentially mascade into abl .
Companies now fearful of shortages are moving toward carrying more inventory. Since the pandemic began, many have been shifting from just-in-time to a “just in case” model. While having more inventory will make it less likely companies will experience shortages, It’s also more costly because it can lead to a lot of excess stock and products becoming obsolete before they’re sold.
But this trend, like the others, is unlikely to change anytime soon despite the elevated costs they’ll incur. That is, companies learned that the cost of empty shelves was higher than the cost of some inefficiency. In most cases, these costs will be passed on to consumers in terms of higher prices – which may be bad news for consumers tired of inflation.
This article is part of Global Economy 2023, our series about the challenges facing the world in the year ahead.
Nada R. Sanders is Distinguished Professor of Supply Chain Management, Northeastern University.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
This article is reproduced from: https://www.fortunechina.com/shangye/c/2023-01/15/content_426147.htm
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