It's prudent to focus on supply-chain cost - after all, companies today are facing many tough economic and financial challenges. In recent years, a large number of suppliers and buyers have either been forced to consolidate or go out of business. But there are other factors to consider in the proper management of global supply chains, says Brockwell. A solitary emphasis on labor cost can put companies "into even more risky situations."
Businesses that have gone offshore for manufacturing must ask themselves whether they have "really made a sustainable model going forward." They need to adopt a risk-management strategy that accounts for such factors as currency shifts, changing customer demand, new entrants, wage rates, commodity prices and fuel costs.
Globalizing a supply chain tends to increase risk because it boosts the number of players that is required to get product to the ultimate consumer. The greater number of hand-offs also means a higher degree of variability. So companies find themselves increasing buffer inventories close to their markets, an action that can have a severe impact on working capital.
To mitigate higher risk, some companies are beginning to engage in scenario planning. They examine the possible outcomes of shifts in their markets, with an eye toward the flexibility of supplier arrangements. They'll identify potential cross-border "choke points." And they'll take into account the cost of complying with a rash of new regulations on importing and exporting, such as the "10+2" filing rule of U.S. Customs and Border Protection. In certain cases, says Brockwell, all of that might mean a return of some production to the western hemisphere.
By examining the entire supply chain in detail, companies can drive efficiencies in their overall business model. Indeed, says Brockwell, they might have little choice in the matter. Otherwise, "your competitors who look at their value chains will win in the end."
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