How Companies Are Overhauling Supply Chains to Ease Bottlenecks

How Companies Are Overhauling Supply Chains to Ease Bottlenecks | WSJ

If you've been waiting weeks for a package, it's possible your order is stuck at sea in a shipping container. The COVID-19 pandemic has disrupted global supply chains, causing significant backlogs and shortages. Some companies are resorting to short-term fixes, like stockpiling goods and chartering private container ships. However, for long-term solutions, firms are contemplating sweeping changes to their supply chains, including shifting manufacturing closer to home. Such strategies require retooling complex global production networks, potentially adding new risks and costs.

A Look at a Globally Distributed Supply Chain

For instance, Timberland's Pit Boss boots, a product sold in the U.S. and beyond, illustrate how a typical global supply chain functions. According to SourceMap, a site publishing supply chain data, the materials—leather and metal details—are sourced from around the world, including the U.S., UK, China, Japan, South Korea, Taiwan, and Vietnam. These materials are shipped to a factory in Bangladesh for assembly before being transported to a distribution center in Virginia and finally shipped to retail locations and customers globally.

Modern supply chains are intricate and far-flung. Over recent decades, supply chains have grown increasingly global. However, disruptions are possible at every step—from manufacturing to transport to distribution. Recent disruptions have caused extensive delays, driving up the cost of many goods. Consequently, corporations are exploring various strategies to mitigate these disruptions and protect their supply chains.

Regionalization

One idea gaining traction in corporate boardrooms is regionalization. This involves setting up factories in multiple regions so that each can supply products to nearby markets, minimizing risk. Supply chain disruptions are not uncommon, often caused by natural disasters like hurricanes or typhoons. A regionalized supply chain means that a closed factory in one region only affects sales in nearby areas.

Near-shoring

Companies are also shortening their supply chains through a strategy known as near-shoring. The concept involves moving production closer to the end markets. For instance, Italian clothing company Benetton is increasing manufacturing in Serbia, Croatia, Turkey, Tunisia, and Egypt—closer to their European markets. The company plans to cut its production in Asia by half over the next year or so, reversing a long-standing trend in the apparel industry.

Reshoring

Another approach is reshoring—moving manufacturing back to the country where it was originally located. A business may choose reshoring if it faces issues with production capacity or transportation bottlenecks overseas.

Costs and Challenges

While these strategies could address some supply chain issues, they aren't fix-all solutions and involve significant costs. A 2020 report estimated that moving manufacturing out of China would cost U.S. and European companies about $ 1 trillion over five years. Smaller companies might find these costs prohibitive. Even if they manage to set up domestic manufacturing, the resulting higher product prices might deter buyers.

Overhauling supply chains is a lengthy process, but companies are considering these strategies to safeguard their operations and ensure future survival.

Keywords

Global supply chains
COVID-19 pandemic
Regionalization
Near-shoring
Reshoring
Manufacturing
Transportation bottlenecks
Cost implications
Timberland Pit Boss boots
Supply chain disruptions

FAQ

Q: What has caused recent major disruptions in supply chains?
A: The COVID-19 pandemic has significantly disrupted global supply chains, leading to backlogs and shortages.

Q: What is regionalization in the context of supply chains?
A: Regionalization involves setting up factories in multiple parts of the world to supply products to the closest markets, minimizing disruption risks.

Q: What does near-shoring refer to?
A: Near-shoring is the strategy of moving production closer to the market where products are sold.

Q: How does reshoring differ from near-shoring?
A: Reshoring involves bringing manufacturing back to the company's home country, whereas near-shoring focuses on moving production closer but not necessarily to the home country.

Q: What are the main challenges associated with overhauling supply chains?
A: The main challenges include significant costs, logistical complexities, and the time required to retool and adjust existing supply networks.

Q: Are there examples of companies that have implemented these strategies?
A: Yes, for instance, the Italian clothing company Benetton is increasing its manufacturing in Serbia, Croatia, Turkey, Tunisia, and Egypt to be closer to its European markets.