Even before the COVID-19 pandemic struck, many companies were looking at reducing their reliance on China for sourcing and manufacturing. The pandemic and its aftermath, however, has served to further accelerate that trend.
However, as companies seek to “rewire” their supply chains, they need to make sure they are doing so in a thoughtful and strategic fashion. Speaking at the Council of Supply Chain Management Professionals’ EDGE Conference on Monday, Michael Zimmerman, partner with the consulting firm Kearney, offered advice gleaned from the experiences of first movers and research compiled by Kearney’s Reshoring Index Report.
For example, Zimmerman recommended that companies conduct scenario planning exercises for factors that might affect their supply chain network design. One key factor, for example, is the nature of relations between the United States and China. Zimmerman recommends looking at several different scenarios such as: what if U.S. and China trade remains relatively open, what if U.S. and China engage in “tit for tat” tariffs, and what if the U.S. and China restrict bilateral trade.
As companies begin to look at alternatives to China, it’s important to realize that their options are not just restricted to other Asian low-cost countries. Many companies, for example, are turning to importing from Mexico and domestic manufacturing in the United States.
However, many first movers have found a lack of skilled labor and the difficulty retaining employees to be major obstacles to their reshoring and nearshoring efforts. Some companies that were originally hoping to rely on temporary workers found that they were not able to attract the number of workers they needed and had to instead pivot to hiring more permanent employees and invest more in training than they had anticipated.
To get the workforce that they needed, companies reported having to increase wages; offer more flexible work schedules and more vacation days; increase automation; and source from new talent pools, such as people with disabilities, those without a college education, and former convicts.
A key part of taking a thoughtful approach to reshoring, according to Zimmerman is to be selective about what products to reshore and realize that it does not make sense to move wholesale out of China.
Finally, reshoring can be used as an opportunity to rethink a company’s basic assumptions about its supply chain. For example, some companies have used reshoring as an opportunity to improve product quality, form deeper relationships with partners and suppliers, and reexamine their own organizational structure.