Right-shoring gives suppliers the upper hand

Logistics and Supply Chain News

Offshoring was an easy way for companies to source products, but it also meant that they gave away some control of product quality and manufacturing processes. This is no longer the case for various reasons, but what happens when production comes closer to the consumer is a different conversation. According to Dave Food, Head of Supply Chain, Board International, companies are now sourcing from more locations to manage risks. This could give suppliers the upper hand in negotiations.

How should we see an end-to-end supply chain? Have the ends been stretched too far to understand and manage it?

Depending on who companies are talking to, they may only think about what happens within their enterprise and not what happens externally. A larger view can be extended by one of their key suppliers or customers; they’re just unaware that they can contribute to a better plan.

The degree of end-to-end may vary according to the industry. In automotive, businesses can go end-to-end, whereas in grocery, they might want to go down to the field. Farmers, retailers, packaging companies, and so forth have a pretty dynamic relationship. It is imperative to remember, however, that end-to-end doesn’t mean everything. It is not about all partners;

businesses should look at their top 5 or the essential resources, understand the opportunity and risk and connect their intelligence into the plan. Through this type of visibility, businesses can gain a more comprehensive understanding of their planning process, improve their peripheral vision, and, as a result, respond more rapidly.

What capabilities are going to be most needed in the next five years or so, both for people and companies?

Due to silicon chip shortages, we have customers who were unable to supply their products. Using the Board platform they are intelligently allocating chips to ensure their customers can still get the products they need since supply issues are constrain them from getting enough chips.

Understanding supply limitations is the least companies can do in a market with scarce products, then planning intelligently to ensure improved customer satisfaction. It’s also important to know what alternative sources are available; they might be sourcing from Taiwan but are now able to switch to Turkey; how quickly can they be switched, and how do businesses intelligently transition.

As a result of Covid and current macroeconomic trends, companies are seeking flexibility. Instead of offshoring, they are rightshoring. They have some local suppliers and others that come from further away, balancing reliability, cost, and risk, but also inventory in transit and, therefore, costs. Resilience here means that businesses are aware of this and have the visibility to make intelligent choices when they need to.

Does this put suppliers in a better position where they can choose their clients?

Yes, absolutely. Sourcing materials in areas of shortage solely on price leaves supply chains vulnerable. It is sometimes necessary to develop a long-term relationship with suppliers of essential materials especially if they are the sole source. A few companies have very strong relationships with their suppliers, but the risk is if the supplier can’t deliver, the company is out of luck.

A resilient plan must also take into account sustainability, profitability, and risk. All of these are visible to the business but are not yet integrated into the planning. The fact that some essential products were being distributed through the same transport hub led some companies to realise that they were at increased risk. Despite originating in different places, all of them went through the same port. To shape and shift risk, it is important to gain better visibility in the network view.

Were supply chains complicit in ignoring the obvious risk?

There is a whole debate about whether companies are capable of managing probabilistic scenarios. For example, if a deal has a 50-50 chance of success, how does this factor into the planning process; is it known only to one part of their business. Unless it is shared with all key players, the whole business may suffer through lack of visibility.

Businesses can learn a great deal if they just extend their visibility. Greater visibility allows them to identify bottlenecks earlier, enabling them to plan intelligently and minimise risks by leveraging opportunities and reducing risks. ✷

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