The COVID-19 pandemic exacerbated the trade war between the US and China, and led many companies to rethink their supply chains. Amplifier Partner Henry Palmer tackles reshoring as a possible solution and looks at areas that could best benefit from innovation.
The US-China tensions of 2019 and the resultant geopolitical turbulence drove many companies to rethink their supply chains, but few expected it to be a dress rehearsal for the chaos caused by COVID-19.
As entire areas of industrial output were shut down, suddenly arguments for reshoring the point of production, or at least diversifying it, gained a new validity. It was no longer simply about cost savings but the basic ability to produce during times of such momentous disruption. Bringing supply chains back onshore, further regionalising, and dual sourcing (using two suppliers) are all now being considered by every type of company.
Shifting Supply Chains — Fragmentation & Reshoring
A recent study by Bank of America Merrill Lynch highlighted that 83% or more of sectors that depend on overseas supply chains are considering or have implemented a plan to shift supply chains — with automation technology a key enabler. Similarly, McKinsey is reporting that 16–26% of global goods exports, worth $2.9–4.6 trillion, could potentially move to new countries over the next five years if companies restructure their supplier networks. For the 605 business executives interviewed by McKinsey (May 2020), it is all about resilience, as shown in Figure 1 below:
But this trend is not only due to COVID-19. In China (accounting for 25% of global manufacturing value-added) manufacturers now have to contend with rising wages, stricter environmental norms, a complex regulatory framework, and a government focused on transforming the economy into a high-skill one. However, manufacturing exits have been on the horizon for a while: In 2005, China exported 71% of its finished clothing goods. In 2018, this had fallen to 29% as companies refocused on domestic demand, and cost considerations pushed exporters to Mexico, Bangladesh, and other alternatives.
Decentralised Production and Sustainability
Decentralising production is beneficial to the global economy, not only encouraging resilience but also offering the possibility of more sustainable supply chains. Today, the typical consumer company’s supply chain is responsible for more than 80 percent of its greenhouse gas emissions and more than 90 percent of the impact on air, land, water, biodiversity, and geological resources (Source: Carnegie Mellon University; CDP; GreenBiz; McKinsey). Localising certain supply chains, as well as offering full traceability, will go a long way to reducing this impact. Startups such as MilkRun and HIER Foods are lighting the way and showing alternative modes of behaviour. By connecting city folks and supermarkets to local food chains, they can reduce the carbon footprint of their products and limit the need for excessive packaging.
Areas that would benefit from innovative practices
There are a number of areas innovation is most needed in order to realise all this:
- Robotics and AVs — Deep AI and vision technology-solutions able to handle high variance in its environment and to carry out precision tasks, moving us towards full end-to-end automation.
- Micro-cell Production — Combines adaptive robots, machine learning, and computer vision to provide “a modern, software-defined approach” to assembly automation.
- Smart Fulfillment — Predictive analytics and data integration between supply chain nodes to better utilise transportation assets and streamline delivery.
- Traceability — Smart IoT (system on chip and printed semiconductor chip technology) to allow full transparency on goods delivery from the point of production.
- 3D Printing — Portable production, able to customise products to meet demand, responding in realtime to SKU demand shifts, and closing the gap between planning and fulfillment.
It is in areas and technologies such as these that Amplifier seeks opportunities with the capability to make reshoring at scale a reality. None more so than our portfolio company Mercado, able to ensure TODAY that importers can easily manage fragmenting and changing supply chains, bringing together disparate functions in a single platform for greater automation and transparency.
To learn more about some of the points touched on above, a good podcast to check out is the SupplyChainBrain episode, “Thinking Beyond the Panic: Sourcing Strategies after COVID-19”, hosted by Bowman (Managing Editor of SupplyChainBrian).