The international web of interdependence in the world’s economies and cultures, known as globalization, has been driving economic growth for decades, spurred by low shipping costs, free trade and labor arbitrage. Globalization has established worldwide economies, helped China jump to the global stage, increased offshore manufacturing and driven international cash flow since the early 1990s.
Today, though, with higher wages, increasing shipping costs and shifting consumer needs, we’re experiencing a new era where global trade is slowing down and occurring on increasingly regional terms.
The term “slowbalization” was coined to describe the shrinking or slowing of international trade, investments, loans and supply chains, marking a distinct shift away from an influential era of global manufacturing. While the type of global supply chains that bring parts from hundreds of suppliers around the world to create a product are well established, I would like to propose that it’s not necessarily slowbalization—it’s a new focus on regional manufacturing and “post-globalization” that’s changing the world.
This post-globalization occurs for a number of reasons, namely technological developments that are bringing production and manufacturing closer to the final destination of goods—the end user; a shift towards services over products; the expense of global expansion by multinational corporations; and China’s decreasing reliance on foreign parts.
The market is also being affected by increased customer demand for customized products, expectations for faster product delivery and a surge in raw material costs. The rise in consumer expectation is at an all-time high, especially in BRIC countries, Eastern Europe and South America. Not only is there a demand for more product, there is also an expectation that manufacturers will match the Amazon speed standard of 48-hour delivery. The higher costs of raw materials, fuel in particular, also contribute to the need for a restructured manufacturing model.
By moving towards a regionally-based supply chain, manufacturing companies are able to address these pain points. The goal of regionalization is to tackle these issues and contribute directly to the host country’s economy, while simplifying the act of shipping parts and supplies from country to country during the manufacturing and assembly process.
For those of us who are in manufacturing, this move toward regionalizing processes does not come as a surprise, as globalization has been slowing for years. This is in part due to modernized ways of managing the supply chain that are designed to achieve the same increase in supply chain speed to match consumer expectations. This results in the opportunity for companies to operate manufacturing facilities in multiple locations.
As slowbalization continues, it will be critical to understand the emerging technologies that are enabling regionalization, the implications of this changing landscape and what to consider in the coming years.
THE SUPPORT OF TECHNOLOGICAL ADVANCEMENTS
The move to regionalization is aided by advancements in technology. The influence of Industry 4.0 will continue to create intelligent supply chains by incorporating data analytics and IoT advancements into the supply chain. As such, it will be important for supply chains to maintain transparency, as complexities with new technologies continue to rise. Abnormalities will be easier to spot with the increased near-real-time visibility of the supply chain, as well as the detection of quality issues and any disruptions that could affect the supply chain.
The ability to utilize data and analytics to identify and monitor risk allows for efficient and optimized operations throughout the entire supply chain. Companies are increasingly turning to digitized solutions to streamline their management, tracking and modeling.
Other advancements, such as 3-D printing, help reduce risks and costs of production, improve production times and quality, and allow for the ability to rapidly prototype. According to a study by Gartner, 47% of supply chain managers plan to implement 3-D printing in the next couple years.
In addition to emerging technologies, a wave of new, unique systems will develop in the supply chain, based on differing cultures and nationalities found within various regions. For example, the way consumers purchase goods in the U.S. is revolutionizing the retail supply chains. In fact, the American Transportation Research Institute’s (ATRI) study on trucking hauls in the U.S. shows that truck trip distance has shrunk by 37% since 2000, due to e-commerce.
For instance, Enphase, a California-based global energy technology company and solar microinverter supplier, added production lines in Mexico to supplant their Asian lines and not only mitigate risk from possible U.S. tariffs, but also to meet North America customers faster, while increasing visibility into production.
THE COMPLEXITIES TO CONSIDER
Although the positive outcomes resulting from post-globalization are undeniable, there are widespread concerns to consider, including the lack of visibility, and the local availability of supplies and parts in certain regions. Offshore outsourcing has been the standard model for years, which has created tremendous manufacturing muscle and parts availability in countries like China, but there can be a knowledge gap as manufacturing moves to more local facilities. Balancing resources and expertise between the go-to regions and those less equipped to handle globalization will be our new challenge.
Transitioning to onshore production, Enphase and other companies in a similar position can improve transparency at the regional level, as time and distance are less significant factors.
Manufacturers also need to consider an extended supply chain network. Full visibility and influence over suppliers, as well as the entire supply chain itself, will be essential to thrive in a regional market. By maintaining control, companies can better anticipate demand for their inventory, reducing the likelihood of producing excess product.
Rising complexities with diverse requirements for products will force manufacturers to work harder, breaking away from longstanding reliance on offshore partners. To support the growth in a regional manufacturing system and ensure efficient distribution, a smaller, more flexible supply chain becomes most attractive.
While regionalization will not solve all the issues brought on by globalization, it will allow new regions to become leaders in the space, such as Mexico, Eastern Europe, or India. Companies will need to weigh the factors presented by the modern landscape to decide for themselves what locations make the most sense for their markets.
In the short term, manufacturers and suppliers will begin to form new relationships to create smart, regional supply chains. Sensor-enabled technology platforms will allow real-time data analytics that monitor the output and send alerts if and when issues may occur. This visibility offers more information than ever before, speeding the flow of products, which ultimately saves money and minimizes downtime.
Supply chain complexity will also increase in the short to medium term, due to factors including offshore production of critical components; the necessity of replicating assets; and an increasing overall network of the chain. This will put more pressure on supply chain experts to ensure the supply chains are managed efficiently. However, over time it is more likely that the end-to-end supply chain will be simplified and shorter, while still maintaining customization and speed. Regional supply chains will have the ability to determine where the product needs to end up, while simultaneously managing the proper end goals of the product.
Additionally, manufacturing will be scaled in certain regions, and line automation will be optimized as we see manual workers turn into skilled technicians. The future of regionalization in the supply chain is bright; however, it will be a long journey. By partnering with manufacturers that have operations in many countries, customers will take advantage of regionalization and deliver on their customers’ high expectations.
Marcin Fic is vice president, supply chain solutions, with Flex, a global electronics manufacturer.