Reshoring and Diversifying the Supply Base
For today’s businesses, evaluating and identifying risks at every point in the supply chain is key to addressing issues and making processes more resilient for the future. Depending only on one geographic region (or factory or supplier) for raw materials or inventory can be disastrous in the case of a crisis or shutdown in that area, as countless companies have learned over the past year or two. As a result, many middle-market companies are looking to move suppliers closer to home and also increase the number of suppliers so there is a backup if needed.
EIS, for example, is diversifying its Asia supply base across both China and Vietnam, “to allow for orders to be placed strategically depending on market conditions,” says William. The company is also expanding its supply chain in Mexico and reshoring production into regional business models to minimize exposure to logistics delays (and the associated cost increases).
The greatest challenge has been the compounding nature of the current environment. For the past 18 months, we have had to deal with multiple disruptions simultaneously.
Prem William
Head of Global Supply Chain, EIS
For many companies, diversifying may mean finding alternatives to China. While this is important to avoid overreliance on any one source, it can come with its own challenges. Shifting production to Southeast Asian countries like Vietnam, Indonesia or Thailand, for example, “will necessitate different logistics strategies as well,” notes the Harvard Business Review. Ports in these countries don’t always have the capacity to handle the largest container ships, and shipping from there may not allow for direct service to major markets. Ultimately, diversifying suppliers and/or reshoring won’t happen overnight, but the pandemic has illustrated how important it is for businesses to be prepared to encounter supplier issues before they strike.
Adopting Tech Solutions
Only 22% of middle-market companies have full insight into their supply chain providers, according to the survey. This lack of transparency can cause countless issues, especially in such a volatile environment. Adopting new technology can help middle-market companies gain more insight into their providers and streamline their overall supply chain. For many businesses, their current technology may be outdated and may not provide the real-time insights they need to address issues as they arise. According to the survey, 34% of respondents have adopted new technology solutions for supply chain management.
Technology’s ability to forecast and predict supply chain issues down the line can be a game-changer for businesses. EIS recently launched a digital supply chain initiative to help “better predict what may happen as well as create visibility into supply chain disruptions in real time, allowing us to make decisions before they are a problem,” says William. “We just implemented a machine learning forecasting process that looks at over 40 external macroeconomic factors to develop a more realistic view of what may happen in the future.” This has significantly reduced the company’s overall projection error since its implementation, ultimately helping lower costs and increase customer satisfaction.
Robotics is transforming warehousing as more and more businesses adopt, innovate and embrace the concept of using autonomous robots to fulfill orders.
Shane Kaiser
Director, Houlihan Lokey
Technology is key to more resilient supply chains. But for many companies, especially those that may not have changed supply chain management practices for some time, getting started can be intimidating. Taking an adaptive approach to technology adoption is crucial, notes a recent Bain & Company brief.
Rather than thinking about technology transformation as a multi-year process—as once was standard—successful companies “deploy rapidly evolving technologies, including cloud-based software-as-a-service applications, that continually enhance the supply chain backbone,” the Bain report says. While ERP systems remain at the core of their operations, they minimize their reliance on the software and delegate tasks that the ERP was once responsible for to smaller SaaS products and other emerging technologies. This kind of tech architecture can more easily adapt to change, which is inevitable given the rapid pace of technological innovation.
There is a huge range of technology solutions that have the potential to transform the way businesses manage their supply chain, notes Bain, including artificial intelligence and machine learning tools to improve forecasting, robotic solutions to transform warehousing, drones for last-mile delivery and location monitoring, blockchain for traceability and smart contracts, 5G for inventory management and remote services, and 3-D printing for decentralized production.
Many of these technologies have been in development or available for some time, but greater demand for optimization and supply chain management solutions has accelerated their implementation. “Advanced robotics is one vertical that we all knew was a possibility but which has been a surprise in terms of how quickly it’s come front and center in the industry. Robotics is transforming warehousing as more and more businesses adopt and innovate and embrace the concept of using autonomous robots to fulfill orders,” says Houlihan Lokey’s Kaiser.
