Restructuring the Supply Base

Restructuring the Supply Base

May 29, 2024
New Deloitte survey finds companies are focused on continued resilience as lead time remains high.

Since the pandemic, supply chains have been reworked to remove risk.  They are also working to optimize the balance between performance and cost, according to a new survey from Deloitte, Restructuring the Supply Base, which was released on May 28. 

The report outlines key takeaways: 

1) Companies are restructuring their supply base to include reshoring, nearshoring and U.S. free trade partners. 

An example of nearshoring is that the fact that Mexico has overtaken China to become the lead US trading partner, accounting for a 15.4% share in 2023 (compared to China’s 13.9%, down from 21.2% in 2018). 

The number of companies relocating their manufacturing and suppliers, either to their home markets or nearby, doubled in 2022 compared to the previous year.

2) Despite global supply chains returning to past levels, lead times remain higher than pre-pandemic. 

The end of 2023 and the first quarter of 2024 saw an uptick in supply chain challenges as a primary business issue for manufacturers.

3)   Investment in U.S. plants and other production facilities increased by 63.1% in 2023 from 2022. This represented the highest year-over-year increase in the last eight decades. 

Increased regionalization of supply chains is receiving a boost from free trade agreements like USMCA. In the US manufacturing emerged as one of the top two industries from direct investment. There are similar patterns throughout North America: FDI in Mexico landed at nearly US$19 billion in the first quarter of 2023, a 48% year-over-year and of this investment, 53% was in the manufacturing sector.  

The report also offers an analysis of supply chain strategies for restructuring. 

M&A strategies can expand supply access and control
The report notes the advantages of horizontal integration through mergers and acquisitions is expansion of customer and supply bases. Gaining access to new markets can produce increased market share as well as lower costs through economies of scale. 

Achieving efficiency through partnerships and new supplier agreements
Companies can invest in the growth of their suppliers though financial investments as well as technology transfers. They can also create supplier agreements that help companies address material flow. 

Companies are expanding their internal capabilities to work to meet potential demand
Adding new manufacturing sites or increasing capacity can help address supply chain issues. Investment in new equipment and technology such as digital twins can increase visibility across the supply chain.