Reduced risk, regionalization become supply chain priorities, economics expert says

Companies are taking to heart the lesson from the pandemic about redesigning supply chains for resiliency instead of simply for efficiency, but that transformation will play out differently by industry and region, said Rana Foroohar, the global business columnist for the Financial Times and an economic analyst at CNN.

Supply chains will also be transformed by adoption of digital technologies that logistics and manufacturing enterprises have not leveraged as well as other industries so far, Foroohar said Thursday during an on-stage interview at FreightWaves’ Future of Supply Chain event in Cleveland.

Supply chain resiliency involves more than shifting from “just-in-time” to “just-in-case” inventory levels.

Geopolitical risks, such as the Russo-Ukrainian War and U.S.-China tensions over Taiwan and trade, combined with the higher landed cost of producing goods in far-flung locations, are pushing companies to take less risk and operate regionally, she explained. The political backlash against globalization, which has exacerbated social inequality in many places, has dovetailed with corporations and governments realizing that outsourcing hasn’t been an unadulterated panacea and that more transparency is needed.  

“I think it’s going to happen at different paces, in different ways, depending on the sector, depending on the geography,” said Foaroohar, whose most recent book, “Homecoming,” is about how the world is going to become more local and regional.

Low-margin industries, like furniture and textiles, were already reconsidering outsourcing to Asia before the pandemic, but the trend now applies to semiconductors, lithium batteries, rare-earth minerals, electric vehicles and other products further up the value chain, she noted. 

From the COVID crisis to mega-hurricanes and wildfires exacerbated by climate change, the frequency of events that disrupt supply chains is increasing, which requires businesses to adopt a new paradigm for sourcing and moving goods, said Foroohar.

“You can have a super long, complex, very highly siloed supply chain, which is efficient, but it’s efficient only when everything is working properly. If you get a pandemic, if you get a tsunami, if you get a war in the South China Seas, it’s not such a great idea. You maybe want to have a little more resiliency,” she told an audience of supply chain professionals.

U.S. tariffs on China and President Joe Biden’s Inflation Reduction Act investments in infrastructure and domestic manufacturing illustrate how this pivot is also taking place within the U.S. government.

“Supply chain interruptions are now happening every 18 months to three years. So this is not a black swan event. This is something that for a variety of reasons is becoming the new normal,” added Foroohar.

And sending production to parts of the world where labor is cheapest without deep understanding of one’s supply chain partners several levels down, and whether goods are ethically or sustainably made, also poses financial, legal and reputational risk that companies are increasingly keen to reduce, she said.

Unspoken is the fact that having more fail-safe business procedures increases operating costs.

China’s strategic policy of becoming more self-sustaining in high technology also means less reliance on the West and more control of its supply chains locally. Getting to that point is proving difficult as China manages a debt crisis, forcing the country’s leaders to heavily rely on trade until the domestic economy becomes stronger.

Big data, sensor technology, mobile applications, the Internet of Things and additive manufacturing are “starting to roll out through the supply chain now. I think it is going to be transformative, it’s going to be a new industrial revolution. And we are just at the beginning of it,” said Foroohar.

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