Sunday, September 22, 2013

Supply Chain Network: From Global to Regional

According to a survey conducted by an engineering professor at MIT David Simchi-Levi, about 14% of the surveyed 108 US-based manufacturing companies plan to move some of their manufacturing back home, which shows a recently growing phenomenon known as “re-shoring”[1].

Obviously, the most significant factor that made big manufacturing companies have to redesign their supply chain network is the increasing overall cost in the offshoring locations. Oil cost has tripled in the last decade, and logistics costs have increased accordingly. Labor cost in China has increased year-over-year by almost 20% while the labor increase in the US is only 3%[2]. Plus the influence of strengthened currency, developing countries like China is no longer the world factory with cheap and infinite labor. Besides, an increasing number of US-based companies would take hidden risks into account when sourcing across the ocean. Such risks may include unstable politics and economy, natural disaster, and diversified labor force. The more global a supply chain is, the more variable and risky for the company.

Designing a supply chain network should consider every aspect and detail that could affect the whole supply chain. For example, regulatory factor plays an important role in China, so companies need to update the latest industrial regulations and adjust strategies accordingly. However, controlling a global network is never easy comparing with regional network.

Another factor that drives big manufacturing companies re-shoring is corporate social responsibility. On one hand, Foxconn’s military and inhuman management style is increasingly controversial in China. Especially in 2010, 15 workers suicide in Foxconn and made the factory soon under public criticism. On the other hand, re-shoring will provide employment opportunities in the US.

The shifts from global to regional, from “just-in-time” to “just-in-case”[3] are results of changes in today’s marketplace. To reduce the delivery cost in the “final mile”, companies are constructing more distribution centers. Decentralized distribution centers not only reduce transportation cost, but also improve organization’s ability to deal with emergency.

However, no matter the supply chain network is “just-in-case” or “just-in-time”, global or regional, the best network would be the most suitable one. So which network is better for manufacturing? Which is better for NGOs? There are a lot of details to consider.


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