Rethinking Global Supply Chains: The Rise of Next-Shoring and its Implications
According to a recent study from the University of Tennessee’s Global Supply Chain Institute, the relocation of manufacturing and product sourcing to emerging economies is no longer the gold standard for global businesses. The Global Supply Chain Institute is part of UT’s Haslam College of Business.
False Promises
The rush to Asia in the last decade promised major cost reduction, but financial gains for many have been short-lived. The study delves into the downsides of outsourcing by putting the complexity and risk of the global environment into context. Evidence from the research, compiled in “Global Supply Chains,” the fourth installment in the “Game-Changing Trends in Supply Chain” series from UT’s supply chain faculty, suggests a more localized supply chain for many products may soon make a comeback.
“Countless factors can harm performance when supply chains are stretched across the globe,” said Ted Stank, UT Bruce Chair of Excellence and one of the co-authors of the study. “The most successful companies evaluate the local variables before jumping into a global supply chain and design a dynamic network less vulnerable to the pitfalls of modern globalization.”
The report utilizes a framework of key national characteristics that appeared in “Global Supply Chains: Evaluating Regions on an EPIC Framework,” a book Stank co-authored with three other faculty from UT and ESSEC business school in Paris. Ten companies, with industries ranging from materials refining to health care, were then interviewed for the study. Real-world examples of their experiences are presented to demonstrate best practices in global supply chain network development.
BT, one of the world’s leading providers of communication solutions and services, sponsored the study. One of BT’s offerings is BT Trace, a portfolio of solutions that accesses and manages information and assets at different points throughout the supply chain.
“Visibility is the most pivotal and elusive element of a successful global supply chain network. Our clients need reliable communication and an understanding of big data to make their businesses work,” said Keith Sherry, general manager of Supply Chain for BT Global Services.
Streamlined, global supply chains are still efficient for companies with complex technology and low logistical costs. However, supply chain network design must change and adapt as the world changes and adapts. The report highlights communication and visibility across the entire supply chain as a consistent element in successful businesses.
The research suggests that supply chains throughout the world will eventually break into a series of “pods” where regional procurement and manufacturing will supply the demand centers of the area with a significant percentage of its production needs.
UT’s Global Supply Chain Institute is an internationally recognized thought leader in supply chain research. To access other studies in the discipline, visit globalsupplychaininstitute.utk.edu. A complete copy of the study is available online at globalsupplychaininstitute.utk.edu/publications/white-papers.asp.
The Next Generation
The UT Global Supply Chain Institute study is not the only source trumpeting the reversal of outsourcing trends in manufacturing. According to Michael Kotelec of Verizon Enterprise Solutions in his “5 Manufacturing Trends that will Shape the Market in 2015” article on industryweek.com, “next-shoring” will have a major impact on manufacturing.
“The rise of a more technical labor force to manage supply chain operations — combined with rising wages in Asia, higher shipping costs and the need to accelerate time to market to meet retailer and consumer demands — has led to more companies shifting their manufacturing strategies from outsourcing overseas to developing products closer to where they will be sold,” Kotelec wrote. “’Next-shoring,’ as this tactic has been dubbed, allows manufacturers to increase the speed at which product is replenished on store shelves. The faster inventory can be moved to the consumer, the sooner the costs to warehouse, ship and dock goods can be freed up.”