Our Terms & Conditions | Our Privacy Policy
Business executives at U.S. retailers and manufacturers have strategically reshaped supply chains to achieve greater efficiencies as global supply chains have proven vulnerable to disruptions and geopolitical and economic uncertainty.
A new report from KPMG found that 81% of survey respondents are working to shorten their supply chains to reduce lead times, diversify supply sources and maximize access to talent while minimizing risk.
Supply chain fragility can weaken the larger business ecosystem and add to global inflationary pressures. With 61% of executives reporting that the volatile global trade environment is forcing their business to refocus on regional and domestic sourcing and distribution, it underscores the urgency to balance critical supply chain needs.
“Business executives are re-evaluating their supply chain assumptions, primarily focusing on regional and domestic sourcing and distribution to mitigate geopolitical and economic uncertainty. Companies are seeing strategic shoring as a way to improve supply resilience and operational agility, offering them the benefits of proximity, cost efficiency and access to resources,” said Jean-Pierre Trouliot, partner at KPMG.
Three-quarters of the survey respondents said they are prioritizing immediate shoring — moving the source of a product to a better or closer location — actions. The Americas’ share of supply chains in the U.S. is expected to rise 16% over the next two years. Also, 73% said strategic shoring has increased their cost efficiency, helping to enhance operations and improve finances. The report also found overall cost was less important than the increased speed, flexibility and sustainability gained from shorter supply chains.
“Companies don’t always consider tax as part of their overall strategic supply chain cost assessment. This could be a big miss. A tax-first mindset, combined with a data-driven, connected thinking approach, can aid business executives to better understand how different factors interact and impact supply chain decisions,” said Doug Zuvich, tax partner at KPMG.
The report found that 23% of executives cited taxes as a challenge to near-shoring initiatives. Nearly one in three cited regulatory policies among the top five challenges for shortening their supply chains. Half of the respondents said regulators and tax officials have influences on their near-shoring decisions, second only to shareholders at 56%. The report found that 43% of execs identified data and analytics capabilities as most important to advancing sourcing goals.
KPMG found that 55% of respondents view resilience and faster time to market as the dominant objective pushing their companies to change sourcing. A majority (75%) of executives say their company has successfully used strategic shoring to strengthen supply chain resilience.
“Any disruption in the supply chain bears the risk of increased inflation and consequently a potential rise in interest rates. That can impact everyone,” said Meagan Schoenberger, a senior economist at KPMG.
Over the next two years, the percentage of U.S.-serving supply chains located in North and South America will rise to 69% from 59%, according to the findings of the KPMG survey.
Among the largest countries in the Americas, Mexico is expected to see the biggest gains, replacing Canada as the second-most popular country for near-shoring in the Americas.
KPMG found about half of the 250 U.S. companies it polled do not yet manufacture in Mexico, South America, Central America or the Caribbean, but they intend to expand into the regions in the next five years. The report found U.S. executives expect to retain the largest share of their supply chain operations over the next three years, and they project Canada and Brazil will be among the top four locations. They also expect Mexico to gain more share of their supply chain operations.
BACKGROUND
In recent years, companies have shifted away from globalized sourcing of goods and looked for more local supply chains to reduce the distance between production and customers in the wake of the COVID-19 pandemic and Panama Canal drought that exposed vulnerabilities of the longer trade routes. Also complicating the issue was the just-in-time inventory model many retailers were using before 2020, which allowed them to carry leaner inventory.
Retailers like Walmart and suppliers to retail have said the just-in-time inventory model they were using before the pandemic meant when the items were sold there was not sufficient back-stock to replenish shelves. Their ability to get inventory was challenged amid the supply chain disruption with closed ports and shuttered manufacturers.
David Meniane, CEO of CarParts.com, said while they were waiting for goods to replenish their stock, they lost sales to companies that had what customers needed. Walmart execs said they did not get full orders from some suppliers and that meant shelves were empty longer, which prompted them to seek out other product sources.
SHORTER SUPPLY CHAINS
The KPMG report found respondents plan to reduce the number of links in their supply chains by 2027 and limit the number of markets they operate in as well. Ohio-based 80 Acres Farm, a vertical farm operator, said it builds its farms close to customers’ produce centers to reduce freight and last-mile delivery costs.
“We want to take the standard 17-step global supply chain for highly perishable produce and remove the non-value-adding steps so we can collapse the chain into two or three steps and deliver the freshest produce to our customers,” Mike Zelkind, CEO and co-founder of 80 Acres, noted in the report.
Nearshoring is important to some industries, like textiles, which moved overseas more than a decade ago and still lacks much of the infrastructure to bring that business to the U.S. at scale. Brazil offers some upside for companies looking to get production closer to the customers.
KPMG said Brazil offers a large population and significant natural resources. Over a quarter of the respondents in the survey already have a presence in Brazil. U.S. fashion retailer Tapestry designed its supply chain to tap into Brazil’s natural resources while avoiding complications from importing raw materials into the country. Tapestry’s Global Head of Supply Chain, Vincent Golebiowski, said optimizing supply chain flows is a perpetual task.
“We always try to understand if our current footprint is the right one, but it can change year on year, depending on our suppliers. I thought our footprint would be more static, but in fact, it is evolving all the time,” he said.
Sam Rosen, president of Ollin Plastics, a maker of rotomolded plastics parts in Monterey, Mexico, said the decision-making process can be constantly changing, so companies need to take a long-term view.
“Twenty years ago, Mexico would not have been the right move,” Rosen said. “But by being open to what’s changing in the market and staying close to our customers, we have crafted a strategy for our supply chain. We live in a world where, going forward, you’re probably going to need a multi-country or multi-shore strategy if you are going to service large global customers. They’re going to be everywhere, so you need to figure out how you can serve them or serve a portion of what they do effectively. If you don’t, someone else will.”
Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics.
Related
Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.
Aggregated From –
Comments are closed.