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OP-ED
PENNED Creating stronger bonds in supply chain Independence is out of the question as reliance on other regions and countries has become a necessity BY KARIM SHARIFF, PARTNER AT BAIN & COMPANY MIDDLE EAST
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OVID-19 threw the global supply chain into a complete frenzy. Many companies were astonished by their own susceptibility. The risk of depending on a supply base that is concentrated in one geographic region has been increasing over the past 30 years, but the pandemic quickly demonstrated how much chaos and pain one unexpected event could inflict. It was a powerful wake-up call. The disruption triggered by COVID-19 has prompted leadership teams to confront a new era of supply chain volatility. Flexibility and resilience Bracing for an era of increased turbulence, leading multinationals are rethinking their supply chain strategies to lower
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the risk of disruption. In a recent survey of 200 global manufacturers by Bain & Company and the Digital Supply Chain Institute, executives ranked flexibility and resilience as their top supply chain goals. Only 36% of senior executives ranked cost reduction as a top three goal, down from 63% who saw it as a priority over the past three years. To improve supply chain resilience, 45% of respondents plan to shift production closer to home markets in the coming years. The good news is that automation has reduced the cost of manufacturing, eroding the labour arbitrage advantage that fuelled decades of investment in offshore production. The cost of humanoid robots is comparatively lower now which means companies with processes capable of being automated such as consumer
electronics can opt to move supply chains closer to home without raising costs significantly. Expanding boundaries For the last 30 years, manufacturing companies have wrung out supply chain costs by disaggregating the various steps of the value chain, concentrating each step with a limited number of companies and geographies to improve economies of scale. As a result, most leadership teams lack sufficient supply chain visibility to assess their geopolitical and geographical risks. Before investing in a new supply chain strategy, successful leadership teams evaluate their supplier and contract manufacturer risk according to two factors: the country where goods are produced and the supplier’s headquarters location.
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