Why Reshoring is the Supply Chain Strategy for the New Normal

“Distant supply chains aren’t just remote supply chains. They’re also less visible supply chains.”
  – Andrea Sordi, professor of supply chain management at the University of Tennessee

The unforeseen events of recent times have compelled businesses to rethink their sourcing strategies. Supply chain disruptions, labor shortages and economic uncertainty have diminished the feasibility of sourcing from far-off destinations.

Business leaders believe it is time to implement alternative sourcing strategies and shorten the supply chain. They can no longer rely on one region for all their sourcing needs.

As they look to identify new sourcing avenues, they are also re-considering their business priorities. What should be the deciding factor to zero-in on a new sourcing location?   

Cost is Still Important But it is Not the Only Criteria 

An Economist Impact report, commissioned by GEP, titled The Cost-Plus World of Supply Chains, explores the key priorities for businesses as they look to align their supply chain strategy with the evolving business landscape.

The report, which is based on a survey of 400 senior-level employees in the U.S. and Europe conducted between December 2021 and February 2022, states: “The low-cost, low-inventory mantras are consigned to the past. The cost-plus world of supply chains has arrived”. 

This implies that building a lean, cost-efficient, just-in-time supply chain is not the topmost priority today. The sole focus on operational efficiency has given way to a greater emphasis on resilience and adaptability. 

In the survey, 81 of the executives advocated the need for greater control and visibility over supply chains. Two in three executives rated supply forecasting and planning as high priority areas.

Amid rising uncertainty, a business must consider several things in addition to cost. Among other things, these include responsiveness and agility. These also include the ability to mitigate risks, survive disruption and ensure business continuity.

Reshoring is clearly the new-age supply chain strategy. It gives businesses the much-needed flexibility to effectively deal with sudden changes in demand. In case of a sudden disruption, it keeps supply chains running so as not to impact business operations.

Reshoring does not mean that cost will go completely out of the equation. In fact, monitoring costs will continue to be a business priority, but the immediate focus is on building an agile and resilient supply chain. 

Supply chain leaders agree that investments in agility and resilience will take time to pay off, but organizations with shorter supply chains are likely to gain competitive advantage as well as market share in the next few years.

Challenges of Reshoring  

Despite all the hype around reshoring and nearshoring, many businesses haven’t succeeded yet in their endeavors. That’s because they haven’t faced such a situation before. They know no other style of working and have always worked with the same set of suppliers.

Given their prolonged dependence on one region for raw materials and components, they are still trying to figure out ways to implement new sourcing strategies. In categories such as electronics, for example, their entire supplier base is in Asia.

Their challenges are manifold. They must find places that have the raw materials, supplier base, infrastructure, skills and technology. And they cannot completely ignore costs too.

The Answer is Right-Shoring 

Right-shoring aims to align procurement activity more closely with a company’s strategic objectives. 

In this approach, a business should have a category-by-category basis plan to zero-in on a suitable location for sourcing, says Jamie Ogilvie-Smals, vice president at GEP. 

It must first understand the key objectives of a revised sourcing strategy and then come up with a sourcing plan for a product, category or component in question. It must also have a specific plan of execution for high-risk, high-opportunity sourcing projects.