Supply Chain Localization emerges as an undervalued yet firm approach to propel enterprises - Ingenious e-Brain

Supply Chain Localization emerges as an undervalued yet firm approach to propel enterprises

For improving ROI and expanding the business footprint, the basic thought process revolves around reducing manufacturing costs and enhancing production efficiency, which is insufficient in current circumstances. Businesses need to reconsider their logistics segment in this era of uncertainty, where the U.S.-China trade war, COVID-19 pandemic, and Russia-Ukraine war have partially and, in some cases, completely devastated the existing global supply chains. In addition, a brand’s reputation is at stake if a delay is observed in the supply of raw materials and final products usually, which is an indicator of an inefficient supply chain. Rather than depending upon sole manufacturers & suppliers established overseas, an enterprise should eye upon more diversified or local supply chain solutions to tackle global supply chain disruption.  Indeed, reshoring or bringing operations and manufacturing back to their respective native countries help businesses enhance their supply chain connectivity. Besides reinforcing, other compelling reasons behind localizing the supply chain are elucidated below: –

Cost-Cutting

Logistics is cost-intensive, especially for a globally operating business. In 2021, the US business logistics costs (USBLC) touched $1.85 trillion. Hence, ineffective supply chain management can further augment the financial burden on businesses. By localizing the supply chain, companies won’t need to source products from foreign suppliers, which will help save a hefty amount of money being expended on shipping and tariffs.

Boost Production

To sustain in this era where consumer trends shift rapidly, businesses need to escalate their production to serve customers better and meet the fluctuating market demands in a limited period. Supply chain localization saves a significant amount of wait time, which is otherwise exhausted in shipping raw materials, semi-furnished, and final products. Moreover, the Suez Canal Crisis-like potential events also obstruct the supply of raw materials. Therefore, the impact of all these factors can be curtailed by adopting supply chain localization. Also, by opting for localized suppliers, businesses can receive additional raw materials in less or no time in case of a surge in demand.

Geopolitical Affairs

In the past few years, trade wars & invasions have influenced the geopolitical environment with stringent restrictions on trading essential as well as non-essential commodities. In addition, abundant offshoring incidents, including supplier viability, have been witnessed during COVID-19, urging businesses to prefer localization. Lastly, administrations offer alluring endowments to encourage native industries to reshore their business operations. To validate, Japanese regulators are providing subsidies worth $2.2 billion to help manufacturers shift their production units from China & other Asian countries to Japan.

Supply Chain Resilience

Resilience has emerged as a need of the hour for modern supply chains after the COVID-19 pandemic has made us realize that disruptions are common, and the subsequent disruption is perhaps in the doorway. Businesses with resilient supply chains have better chances to withstand disruption than industries following rigid supply chain operations. To justify this, In 2018, KFC—an American fast food restaurant chain—opted for DHL Freight Global as the sole distribution partner for frozen food in the UK region. As DHL had no prior experience with chilled foods, and it had only one distribution center across the UK. Hence, KFC faced many challenges and had to force close its 700 stores due to failed deliveries by DHL. Adopting certain variations in the supply chain enables industries to utilize their resources more efficiently and save a lot of time and money.

Contingency Planning: Organic Solar Cells

Contingency Planning is a strategy of a company to be prepared and respond effectively to a disruption. Nowadays, numerous companies are adopting tech-powered solutions for better contingency planning to increase their chances of withstanding disruption significantly. If industries, rather than outsourcing, localize all their requirements, the response time is reduced considerably. Hence, supply chain localization is also an effective way to improve contingency planning for a firm.

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Although supply chain localization offers phenomenal opportunities for businesses to sustain and flourish, it also begets some hardships. Some of the challenges industries face by collaborating with local suppliers are: –

Inaccessibility to novel or refined goods

While the group of local entities meets consumer demands, with the entire world as a common platform, one will have access to international brands that offer unprecedented versions of the goods in terms of quality and function. Therefore, supply chain localization limits accessibility by setting the confines.

Global Supply Chain May Be Cheaper

Industries prefer international suppliers & partners over local ones, as the former group offers raw materials & semi-furnished products at discounted prices due to lower manufacturing & operational costs. Therefore, certain businesses import components from abroad despite expending bulk on shipping and custom tariffs.

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Conclusion

Based on the facts & by comprehending a few segments of business management, it has been recognized that organizations need to localize their supply chains to withstand disruption & respond promptly, enhance a local and national market presence, and save crucial resources. On the contrary, global supply chains provide exposure to industries at an international level and access to all the superior products & technologies available worldwide.

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