The end of globalization? How crises are reshaping supply chains

This audio was created using Microsoft Azure Speech Services

Globalization was one of the defining global shifts of the 20th century. Twenty years into this new century we face crisis after crisis: a global pandemic, accelerating climate change, increasingly fierce and frequent natural disasters, geopolitical tensions, rapid technological change, swings in consumer demand, and, most recently, soaring energy and raw materials prices.

This has led many to question the very future of globalization and prompted companies the world over to rethink their supply chain strategies.

Supply chain disruption, in itself, is not new. Storms, strikes and sanctions have interrupted trade flows for centuries. But this time is different: globalization and technology have made the world more interconnected than ever before. Events in one part of the world can ripple and be felt around the globe within weeks, days, or even hours. So now when crises strike, supply chain managers are left fighting multiple fires on multiple fronts.

Immediate crisis-juggling aside, supply chain managers also need to consider the long-term response to this unpredictable landscape.

The end of globalization? How crises are reshaping supply chains

Reshaping supply chains: shorter and more regional

A McKinsey survey of senior supply chain executives in 2020 showed that improving flexibility, agility, and resilience were top of the priority list. By last year, respondents had a clearer idea of how to achieve this: 90% said they were expecting to pursue some degree of regionalization during the next three years.

We see this same trend in our own conversations with business partners: many are making moves towards regionalization.

There’s logic to their thinking. Nearshoring or reshoring — i.e. manufacturing, assembling, and distributing closer to where products will be sold — brings operations closer to their customers, and so helps companies improve how they serve customers.

Perhaps even more importantly, nearshoring also means that companies have to develop new ecosystems, to work in sync with suppliers and partners — from raw materials, to parts, to transport, to final assembly. This facilitates the exchange of knowledge, expertise, and collaboration, which in turn enables companies to innovate and adapt to customer needs and industry trends more quickly.

Reshaping supply chains: seeking a balance between global and local

Purely local supply chains have significant vulnerabilities, however. Because they’re more exposed to disruptions that may arise locally, supply chain managers need to have back-up plans that allow manufacturing to be picked or maintained elsewhere if needed. Globally standardizing processes and production provides the necessary backbone, improving overall supply chain resiliency. And there will always be a percentage of supply that is global — certain raw materials like plastics, and electronics components including semiconductors, for example.

In other words, supply chain resilience is not about being either global or local, but about seeking a balance that reaps the benefits and mitigates the risks of both.

This is in essence what we do at Schneider Electric. Our multi-hub “glocal” (global-and-local) model has been in place for many years, since well before the disruptions caused by the pandemic and recent energy-price spike.

As the most local of global companies, we’ve structured our operations around four hubs – Europe, China, the United States, and India. Each is responsible for its product specifications, research and development, manufacturing, distribution, and suppliers. This gives us greater agility to respond to customer needs and market trends.

At the same time, working with local suppliers brings new ways of thinking, skills and expertise, helping us to accelerate innovation, and to take local ideas to the rest of the world.

Reshaping supply chains: the sustainability angle

There’s a sustainability imperative too: shorter supply chains have less of an impact on the world’s environment.

Consumer companies’ supply chains typically account for more than 80% their overall greenhouse gas emissions, and more than 90% of their impact on land, water, biodiversity, and geological resources, according to McKinsey.

Business and supply chain leaders have a responsibility to reduce this impact. Nearshoring and shorter supply chains is one way to do this. Digital technologies for energy and resource management and efficiency are another. Urging and helping supplier and partner networks to go green, like we do at Schneider, is a third.

Whether it’s sourcing green energy, reducing packaging, or giving products a second life, there are many concrete ways companies can, and should, act.

There’s much rhetoric about the end of globalization. The reality, however, is far more nuanced. Greater agility and resilience in supply chains is not a case of black-and-white, or of local-versus-global. Instead, it’s about striking a balance between the two — now and in the future.

Tags: , ,