Reshoring the Supply Chain

Assess current situation

A clear understanding of your existing supply chain model should include an analysis of current challenges, risks, and opportunities. Be sure to quantify costs related to transportation, tariffs, product handling, quality control, exchange rates, lead times, and taxes and incentives.

Explore country/region options

In order to build a list of potential countries for supply chain diversification, quantify the attractiveness of each on a scorecard comprising data points that encompass both cost- and non-cost factors. These should include how receptive the area is to your manufacturing processes; whether licensing is likely to be granted, the range of storage options available; infrastructure; local employment; power grid resiliency; and country-specific compliance requirements related to environmental protection, labor, and import/export. It is particularly critical to evaluate whether a country’s infrastructure can support your suppliers and their ability to ship products. This consideration includes carrier availability, road/rail infrastructure, and port facilities.

Conduct a cost/benefit analysis 

It’s easy to see the difference between a widget that costs 25 cents in China versus the same widget costing 30 cents in Mexico. It’s harder to evaluate speed to market, reduced risk, or a gain in customer satisfaction. 

As you look at a range of supply scenarios, management will want to know if and to what extent reshoring makes financial and business sense. Evaluate both tangible and intangible costs. Tangible costs break down into direct costs (e.g., skilled labor, including availability and productivity; raw materials; real estate; power, water and other utilities) and indirect costs (e.g., transportation- costs, taxes, tariffs, and quality control measures).  Don’t forget the costs of rectifying issues related to quality or delivery, and the costs of transitioning from current to new suppliers. Bear in mind that, when shifting to nearshoring, direct unit costs often go up even as shipping, transportation, and logistics costs go down.  This is where intangible value comes into play, including greater agility, speed, improved service levels, shorter inventory holding cycles, more effective decision-making, and risk minimization – all of which are of greater benefit for longer supply chains than shorter ones.

Perform a risk analysis

Although acute geopolitical risks in certain regions may be evident, more subtle risks exist in relatively stable areas as well. When it comes to political risk and corruption, it is important to look at the immediate, medium- and long-term periods. These factors will be critical when it comes to protecting minority investors and enforcing contracts. Other risk factors to consider include the predictability of delivery times, stock availability, quality issues, exchange rate volatility, trade relations with other countries, weather patterns, and, of course, economic conditions.

Retain a local liaison

Executing a new-market entry on foreign soil can be complicated given local regulations and operational realities. Having a local advisor in your corner capable of explaining things and advising actions can make the transition easier with fewer headaches. 

Use AI tools to ensure decisions are aligned with long-term business goals

Ensuring that your reshoring decisions align with long-term business goals and strategies is easier with AI tools in the mix. With sophisticated AI and digital twinning tools, supply chain leaders can analyze the many variables that go into a decision to reshore, as well as improve and refine supply chain operations. For example, in a digital twin environment, you start with a baseline scenario representing the current supply chain and then make comparisons to scenarios with variability across locations, infrastructure, costs, and other variables.

Craft your transition strategy

Shifting all or part of a supply chain to new geographies is an incremental process. Take time to assess which products and/or processes to transition first and proceed in phases. Phase one may involve pilot tests, followed by make/buy analyses on a region-by-region basis. During this process, ensure you evaluate the depth of each localities industrial base. As you cultivate relationships with new suppliers, it is critical to create regular and open communication mechanisms and to take steps to build trust, all of which will help increase coordination and reduce the risk of avoidable incidents and delays.

Re-evaluate

Progress doesn’t stop with the transition. Continuously monitor and assess the performance of your onshoring, nearshoring, friendshoring, and insourcing efforts and make adjustments and improvements as necessary.