THE BUSINESS CASE FOR MAKING IT HERE

Reconsidering Your Extended International Supply Chain regardless of the pandemic!

The COVID-19 Pandemic has placed enormous stresses on global supply chains. Countries worldwide have recognised the vulnerabilities in their supply chains, especially for critical medical supplies. As a result, there is a widespread push in almost every developed country in the world to bring production closer to home. With a particular focus on the global dependency on China, given it was the first country impacted by the pandemic and because of the diplomatic tensions between China and several western countries, including Australia, Canada, the US and the UK.
In amongst the media hype, the occasional sceptical voice points out that once supply chains start to stabilise, businesses and governments will quietly drop the nationalist “make it here” rhetoric and supply chains will revert to normal. Products will be purchased from the cheapest supplier, regardless of where.
However, at Swift Metal, we think a reassessment of international supply chains is overdue. The pandemic brings into focus problems that have been obvious for at least five years.

We see five key reasons why bringing manufacturing closer to your customer makes more sense, now more than ever!

1

For many, the economics of outsourcing no longer stack up:
Businesses outsourced to low wage economies to save money, which increased demand for labour in those countries, especially China, and consequently drove wages up. With millions lifted out of poverty, those developing countries have become significant markets in their own right. Other costs such as energy, freight, land and building expenses have also increased dramatically, closing the gap in production price. Topped with hidden costs such as international travel, compliance costs, quality assurance costs, translation of documents all erode the competitiveness of the imported product.

2

Longer supply lead times bring considerable costs of their own: 
Sadly over the past 20 years, most companies have dramatically increased their lead times by shifting production offshore. Such decisions often have negative consequences for customer service and inventory. Most companies face lead times of 12 weeks or more when importing products from low-cost countries such as Asia, resulting in much higher working capital and warehousing costs. It also impacts when a quality issue occurs, as it is likely to affect months of stock already in warehouse, transit or still in production overseas.

3

The fickle customer: 
Today’s customers expect more, whether they are in a B2B or B2C space. As developed markets mature, companies need to offer better service, more customisation and newer, fresher products to compete and grow. Product life cycles have compressed, product ranges have expanded, and customisation is being offered and expected over an ever-widening range of products. Long supply lead times are the enemy of flexibility and responsiveness. When you add extended design and sampling times, supply lead times become excessively long. It can take six months to conceive and execute a minor product change. In most markets, this is considered too slow.

4

Technological change: 
As has been well covered, we are in the midst of a 
fourth industrial revolution driven by advanced, internet-enabled digital technology. Manufacturing technology is becoming more intelligent, easier to use and, in many cases, cheaper. Meaning that the know-how and finance needed to increase local manufacturing capability in many sectors is more accessible and affordable than ever before.

5

Geopolitical and supply chain risk: 
Sadly, the world has become a more uncertain place over the past few years. Political tensions are at boiling point in many parts of the world, leading to formal and informal barriers to smooth trade. Protection of intellectual property and governance remains an issue in many developing countries and, in some cases, is getting worse. As well, the pandemic has disrupted international trade and logistics. Airfreight has become challenging, expensive and unpredictable. As a result, previously reliable international supply chains are likely to face some disruption for months, if not years.

Assess the total cost in your supply chain based on the above points, and you will be surprised at how costly international suppliers can be. 

Source from TXM Lean Solutions

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