Supply Chain Leaders Must Incorporate Regional Designs into Global Networks
To better deal with growing protectionism and the need for higher agility, chief supply chain officiers (CSCOs) must incorporate regional designs into their global networks without diluting the cost or competitive advantages of existing global networks, according to Gartner, Inc.
Gartner analysts pointed out that global trade has tripled in the 21st century, from $7 trillion to $21 trillion – along with the complexity of global supply chain networks.
“Many industries have become capacity-constrained,” said Kamala Raman, vice president analyst with the Gartner Supply Chain practice. “Some of this is driven by availability of material, some is driven by labor shortages in both manufacturing and transportation, some of it is driven by changing quarantine conditions around the globe, as well as the general inability of countries around the world to operate at a pre-pandemic normal.”
For supply chain leaders, this means that the world is still relying on global trade but has become less globalized compared to a few years ago. A recent Gartner survey showed that 51% of supply chain leaders expect that national interests and pressure to favor domestic operations will increase in influence on future supply chain decisions. A successful supply chain now integrates regional supply chains into global networks.
There are two approaches supply chain leaders should consider:
Regional Sourcing Improves Scale-Based Industries
For scale-based industries that are driven by customer demand, such as clothing, electronic devices and groceries, it has been the consumer’s need for predictable supplies, despite volatile demand patterns, that has led to a rise in local sourcing for retailers. Consumers demand agility and reliability from their retailer of choice. If a product is not available, and consumers don’t know when it will be in stock again, they will go to the competition.
“Consumers want reliable goods available at an acceptable price. In today’s world, a company’s ability to fulfill demand does not come from only a global network or only a regional network, but a blend of both,” Raman said.
In today’s world, a company’s ability to fulfill demand does not come from only a global network or only a regional network, but a blend of both,” Raman said.
Partnerships Help Navigate Strategic Industries
In strategic industries, such as the semiconductor or high-capacity battery sector, organizations can’t make decisions based on cost alone. They are also restricted by national security concerns or simply an impossibly high demand for innovation. Public-private partnership is often key.
For example, the European Commission has approved a $3.5 billion fund to foster the development of batteries for electrical vehicles in 12 European countries. This public funding is expected to draw a further $11billion from the private sector. Taiwanese entrepreneurs have drawn upon their government’s substantial R&D support to become a chipmaking powerhouse. The CHIPS for America Act will provide $52 billion in federal investments to strengthen domestic semiconductor research, design and manufacturing.
Supply chain leaders in strategic industries must distinguish between the decisions they control, the decisions they can influence, and the decisions made for them by industrial or national policies. Meaningful partnerships with relevant players in their ecosystem, as well as governments, are critical for success.
“Countries are all tightly integrated when it comes to the goods we’re used to having around. Consider the dozens of suppliers around the globe in the COVID-19 vaccine supply chains that are saving billions of lives today. For example, for the Pfizer/BioNTech vaccine, there are 280 components from 25 different suppliers involved, spanning 19 countries. CSCOs have to find a way to balance the global supply chains that have worked well– and still do – with regional additions that place people, planet and purpose above short-term profits,” Raman concluded.
