Two thirds have shifted sourcing locations in response to global disruption
A Reuters Events, Supply Chain survey reveals that supply chains are undergoing a period of profound change, moving to new sourcing locations due to recent global disruption
According to Reuters’ new a generational shift in sourcing white paper, which is free to download now here, 67% of global retailers and manufacturers have changed materials and components sourcing locations because of recent supply chain disruptions.
The results, which draw on a global survey of 368 supply chain professionals, show that we are now deep into a critical period of change for supply chains, as companies look to source products, components and materials from new locations, often closer to home, in order to reduce their risk exposure.
If you don't have product on the shelf, or you're not able to sell the product, you've got a massive hit straightaway on revenues
This is a direct consequence of the deficiencies shown up so prominently by recent disruption.
“The previous business case for reshoring used to be around cost,” said Sushank Agarwal, Managing Director for INVERTO, a Boston Consulting Group company, who was interviewed for the report. “I think what’s driving it now is more supply security. Supply security has a much bigger impact on any business' EBITDA, because cost is only part of that P&L, but if you don't have product on the shelf, or you're not able to sell the product, you've got a massive hit straightaway on revenues. So, the urgency has never been greater.”
“It is no longer a lean model. It is a reliable model,” concurred Karel Stransky, Head of Corporate Industrial Advisory, Occupier Services EMEA at Colliers.
Reinforcing the strategic swing, an even higher 77% of logistics and technology services providers for the supply chain sector say that the disruptions have changed their clients’ sourcing strategies.
There is also a sense of urgency around the shift, with retailers and manufacturers putting near-sourcing and -shoring at the heart of their strategic outlook and planning. Just 4% of those who have already made changes to their sourcing outlook say that it is a low priority going forward for their business, compared to the 58% who say that is a high priority or the very top priority for their organisation.
The primary driver for this change in mindsets and production locations has been the prolonged period of disruption that has raised costs, added complexity and cut capacity.
While the worst phase of the pandemic has ended, easing some of the most problematic imbalances in supply chains, the environment is far from benign and represents continued challenges that are helping to push the near-sourcing and nearshoring discussion.
The classical, old world of globalisation and free movement of private goods … is something we need to leave behind us
At the time the research was conducted in Q3 2022, 95% of respondents think that global logistics networks have yet to normalise, and while 48% expect a return to some normality within two years from this point, a near equal 47% believe it will take more than two years at minimum, or in the case of 26%, will not stabilise at all.
That instability is why Patrick Haex, Managing Partner at BCI Global believes, “The classical, old world of globalisation and free movement of private goods … is something we need to leave behind us.”
“My personal view is, in some industries, this will be the new normal and they have to adapt,” agreed Agarwal.
That adaptation will be to move manufacturing and sourcing to locations closer to end markets and to a more diverse set of low labour cost countries said the research.
For the full results of the survey and in-depth analysis, download the complete white paper for free here.