Heavily impacted by the supply chain disruptions that happened during the early stages of the global pandemic—and that continue to effect specific business sectors months later—American manufacturers are rethinking their supply chains and coming up with new ways to shield them from future shocks.
In surveying 150 senior manufacturing executives, law firm Foley & Lardner found that most expect to make “fairly drastic” changes to their supply chains post-pandemic, including a shift away from just-in-time manufacturing (JIT) and sourcing in China.
In its “Global Supply Chain Disruption and Future Strategies Survey Report,” Foley & Lardner says of those companies that were operating in China pre-pandemic, 59% have either already withdrawn operations, are in the process of doing so or are considering it. Many of those organizations are looking to reshore their operations closer to home in the U.S., Canada or Mexico.
What’s Going On?
According to the survey, most companies expect a shift away from models that focus on low costs and lean inventory and toward greater stability and resilience. “70% agree that companies will lessen their focus on sourcing from the lowest-cost supplier,” Foley & Lardner says, “and 62% expect the focus on JIT manufacturing models to decrease.”
The vast majority (92%) are doing what they can to create more visibility within their supply chains, while also focusing on increasing transparency with suppliers and buyers as a top risk mitigation strategy. Just 7% of companies are not undertaking contingency planning efforts to prepare for future disruptions.
Here are some of the other key findings from the report:
- Due to the pandemic, 70% of companies will lessen their focuses on sourcing from the lowest-cost supplier in favor of higher supply chain resiliency.
- 62% agree that the focus on JIT manufacturing models will also decrease.
- Over the next year, many manufacturers expect to strengthen relationships and increase transparency across their supply chains (42%), multi-source products to reduce reliance on any one supplier (39%) and diversify their supply chains among multiple geographies (30%)
- They will also review contract terms (25%)—especially regarding sole source and force majeure provisions— and consider new technologies, such as tools to improve supply chain visibility and tracking (47%) and operational analytics (39%).
The Move Away from China
According to Foley & Lardner, the most well-documented shift—in light of the pandemic and an ongoing trade war—has been the move away from China. “Of our survey respondents who have operated in China,” it states, “59% have either already withdrawn from the country, are in the process of doing so or are considering it.”
These findings correlate with broader economic trends. For instance, in 2019, the total manufactured goods imported to the U.S. from low-cost countries in Asia (including China), as a percentage of U.S. manufacturing gross output, declined for the first time since 2011, the firm points out. Also in 2019, a different survey found that 90% of large American companies operating in China said they had been affected by the U.S.-China trade dispute.
“Companies that previously diversified their international supply chains in response to the U.S.- China trade war were better positioned to mitigate the effects of the pandemic,” Foley & Lardner’s Kate Wegrzyn concludes. “That said, companies may also benefit from retaining certain processes in China while relocating others in a strategic manner that disperses risks of disruption.”
As they work to reposition their operations, manufacturers are also dealing with growing concerns over consumer demand (58%), employee safety (43%), and additional challenges inflicted by COVID-19 and evolving geopolitical risks. Even so, Foley & Lardner says the case for supply chain transformation has been simmering for some time and that the virus may finally force change.
“There are lessons to be learned from this pandemic,” said Foley & Lardner’s Vanessa Miller, in the report. “Among them is that cost may not be the only consideration, that companies can stabilize their supply chains by bringing on alternative suppliers or moving certain functions in-house, and that technology can help stem future disruption.”