CSCMP's Supply Chain Quarterly
October 16, 2018
Forward Thinking

High-tech leaders seek cost cuts with shorter supply chains

A UPS-sponsored survey documents a decline in offshoring strategy among high-tech manufacturers worldwide.

Buffeted by rising transportation costs and increasing customer demands for fast delivery, high-tech executives are pulling back from a long-held strategy of offshoring production, according to the results of the fifth annual UPS "Change in the (Supply) Chain" survey. The survey was conducted by the consulting firm IDC Manufacturing Insights on behalf of Atlanta-based shipping and logistics giant UPS Inc.

IDC researchers polled 516 high-tech executives and senior high-tech supply chain professionals in North America, Europe, Asia-Pacific, and Latin America.

Asked about their plans for building supply chain networks to support manufacturing, 47 percent of respondents said they continue to pursue offshoring strategies to reduce labor costs. However, a growing portion of executives are taking the opposite path, positioning their supply chains closer to local resources and markets to cut transportation and inventory carrying costs, reduce transit times, protect intellectual property rights, and improve customer service.

About 45 percent of respondents said they are "rightshoring"—optimizing the proximity of sourced materials to production, warehousing, and distribution to achieve the best customer service and overall profit margins. Another 35 percent said they practice "nearshoring," which moves manufacturing or assembly closer to the location of demand. The popularity of nearshoring has grown by 25 percentage points since 2010 as corporate leaders seek to develop more nimble supply chains in an age of burgeoning high-tech exports and global markets, according to the report.

"High-tech companies are building more flexibility into their shoring strategies and supply chains so they can respond better to demanding market dynamics," said Dave Roegge, high-tech marketing director at UPS, in a statement. "They're thinking more holistically about their strategies to evaluate their transportation costs and the time it takes companies to deliver goods."

The majority of respondents expressed optimism about the growth outlook for high-tech exports, with 46 percent predicting growth to continue at its current pace and another 28 percent expecting faster growth through 2017. Penetration of emerging markets is becoming more prevalent, with 71 percent of respondents selling products in China, 45 percent in India, and 42 percent in Brazil.

An executive summary of the survey's results is available here.

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