Logistically Speaking: The Three R's of Global Supply Chains—Risk, Reshoring and Resilience

Sept. 8, 2014
If you don't have visibility into your supply chain, how will your company survive when disaster hits?

Everybody talks about reshoring these days, but nobody seems to be doing much about it. While there's anecdotal evidence that some U.S. manufacturers are bringing production and assembly work back home from China and other low-cost countries overseas, there's no reliable way to quantify exactly how much of that reshoring activity is taking place, since there's no government data available to either substantiate or refute how widespread this trend might be.

In our recent MH&L Editorial Advisory Board Roundtable, Jim Tompkins, CEO of Tompkins International, says in no uncertain terms that there is no mass migration of jobs back to the U.S.; quite the contrary, in fact. There are still more manufacturing jobs leaving the U.S. than are coming back, he observes, adding that "offshoring of manufacturing from the U.S. is still significant." Even China is getting into the offshoring act, sending low-wage jobs to even lower-cost countries in Southeast Asia and Africa.

Harry Moser, founder of The Reshoring Initiative, points out that it could take 20 to 30 years of a sustained reshoring effort to reverse the effects of 60 years of offshoring. And companies bringing some work back to their native shores will continue to locate production facilities overseas to serve local markets.

So as manufacturers continue to extend their supply chain presence into every corner of the globe, risk management has emerged as an essential part of their daily operations… or at least, you might assume that to be the case. Paul Dittman, executive director of the Global Supply Chain Institute at the University of Tennessee, begs to differ, though. In a recent study of 150 supply chain executives, Dittman's research team discovered that 90% of companies do not quantify risk when outsourcing production.

Dittman admits to being surprised that so many companies have done so little to formally manage their supply chain risk. "Any business that does not have some basic form of risk mitigation plans in place is simply gambling with its existence," he stresses. Equally mystifying is that not a single one of the survey respondents uses outside expertise to assess supply chain risk. Part of the problem, Dittman believes, is that few executives are compensated or incentivized to closely monitor and manage risks.

Cutting corners on risk management not only makes supply chains brittle but can even put lives at risk, notes Jonathan Hall, chief operating officer of FM Global. Supply chain vulnerabilities, particularly in overseas operations, expose parent companies to physical as well as business risks every day. "When supply chains break down, customers don't get products, companies lose revenue, brands are sullied, and the company goes into a hole," Hall says.

It's critical, Hall adds, for companies to have "full day-to-day visibility into the entire supply chain. This visibility needs to go beyond the main supplier level to suppliers' suppliers and their vulnerabilities." 

The problem is, 40% of the senior manufacturing executives surveyed by KPMG say they lack information and material visibility across their supply base, and another 38% lack critical details on supplier performance, with respondents saying they don't have the necessary technology to achieve this level of supply chain visibility.

But paradoxically, it's this very concern over risks in the global supply chain that is driving more interest in reshoring. If you don't mind hearing the results of yet another survey, in a study undertaken by BDO of the top 100 public U.S. manufacturers, 100% cite concerns about their supply chains, a huge jump from 83% in the previous year's study. According to Howard Sosoff, manufacturing and distribution practice leader at BDO, quality concerns and significant exposures throughout global supply chains are fueling the reshoring trend in the industry.

Ultimately, reshoring and risk management are both partial solutions to a larger issue, which is creating a resilient supply chain, one that can react to issues whether they occur in your backyard or in the backwaters of a developing country. As FM Global's Hall says, resilience will put a company in position to grab market leadership from its competitors. "Vulnerability is a choice," he notes, "and resilience is its own ROI."

Follow me on Twitter @supplychaindave.