3 MIN. READ
The events of the past two years have had a radical impact on the U.S. manufacturing sector. Between COVID-19 throwing global supply chains into disarray and the war in Ukraine contributing to supply shortages, more and more manufacturers are looking at domestic supply chains and distribution networks as the new standard for their operations.
In fact, a recent study by Bloomberg found construction of new manufacturing facilities has far outpaced new building construction in the U.S. overall, with the construction of new manufacturing facilities up 116% over the past year. This is compared to a 10% increase in all new building projects in the U.S.
Additionally, global management consulting firm Kearney recently surveyed U.S. manufacturing executives and found 92% express positive sentiments toward reshoring and 79% of manufacturing executives with operations in China have either already moved or are planning to move production stateside. While a recent study by McKinsey reports that long supply chains are more vulnerable to disruptions, costing the average company the equivalent of 42% of annual profits every decade.
So what steps should companies take when changing suppliers? Whether you're looking to bring production back from overseas or are seeking alternative suppliers to your existing domestic supply chain, consider these four factors to ensure a smooth transition.
International vs. Domestic Supply Chains
Domestic supply chains have long been dismissed by many industry analysts as too expensive. What these analysts ignored was the risk that comes with relying on international chains that have several critical failure points.
Foreign suppliers are far less expensive on paper, but they require agents and interpreters and are difficult to visit in person compared with domestic suppliers.
They are also subject to interruptions caused by issues occurring in their home country, such as political upheaval or epidemics. Finally, they pose the ever-present risks of forced technology transfers and outright theft of intellectual property that are encouraged and sanctioned by certain nations. For these reasons, supply chain life cycle costs often end up being much higher than projected.
Selecting domestic supply chains gives companies far more control in their product management. In addition to simplified accounting through the elimination of international trade, domestic delivery networks are shorter, robust and redundant.
Contracts and agreements are governed by the laws of one country and are easier to draft and enforce. There is also the ability to quickly meet with suppliers in person to communicate requirements without the services of an agent or translator. These factors make it extremely advantageous to switch to domestic supply chains to stabilize your operations.
For many companies, the transition will be the most difficult aspect of switching supply chains. If your existing supplier is no longer able to fulfill its obligations, you need to seek other suppliers to keep your business alive.
Therefore, for many companies, this transition will be more of an abrupt switch. Here are a few things to remember when making the change.
Alignment and Projections
The most important thing when changing supply chains is to match your company‘s vision with the right supplier. If your company is looking to expand rapidly within the next three to six months, you'll need to select a supplier that can keep pace with that rate of growth. The last thing you want is to be locked in with a supplier that is unable to fulfill requirements because your growth was larger than projected.
The reverse is true as well; it will be a problem if you predict millions of units required annually and instead only see a few thousand. A significant portion of the supplier's capacity that was set aside for your operation will instead be sitting idle. This illustrates the importance of truly understanding both your short-term and long-term potential in order to match with the right supplier.
Decentralizing
With multiple options available domestically, your company can decentralize its supply network to protect against single-point-of-failure disruptions. Rather than depending on one supplier, you can rely on multiple sources. While this does provide protection, it also increases the demands on quality control to ensure that all suppliers are meeting the same standards.
Relationships
Relationships are important when it comes to supply chains. This applies not only to the relationship between you and the supplier, but between the supplier and 3PL providers. If your company embraces just-in-time manufacturing, the shipper of choice must be able to deliver on time.
If the supplier and 3PL provider work well together, you will be able to tell without much sleuthing.
A good relationship between the supplier and 3PL may also afford you some benefits, such as contingency warehousing or competitive rates.
In these unprecedented times, understanding how to choose the best domestic suppliers for your business can make the difference between success and failure. IndustryNet is a free online marketplace, where users can build lists of potential suppliers and request quotes directly from 400,000 U.S. manufacturers and suppliers of more than 10,000 products and services. Start your free search today!
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Editor's Note: This article was originally published in May 2020. It has been updated to reflect new global supply chain trends and statistics.
