How will changing dynamics in manufacturing affect supply chains?


warehousemanagementlightwell-1It's no secret that the last several decades of supply chain development have seen increased offshoring and outsourcing of key manufacturing components to other countries, resulting in jobs shifting overseas. The cost of doing business with U.S.-based manufacturing concerns versus off-loading most of the product assembly to nations with cheaper and more abundant labor sources made it virtually a one-way street. This dynamic could finally be changing, however, according to a new study - and it could have a dramatic effect on the way that supply chains operate. 

The study by The Boston Consulting Group looked at the way that manufacturing costs have changed according to four barometers: exchange rates, energy costs, manufacturing wages and labor productivity. These factors were compared for the top 25 exporting economies in the world, which together account for almost 90 percent of worldwide manufactured goods exports. The researchers found tha there is a need to take a fresh look at the directions in which supply chains flow, and evaluate whether businesses can truly remaining competitive adhering to traditional models.

"Years of steady change in wages, productivity, energy costs, currency values and other factors are quietly but dramatically redrawing the map of global manufacturing cost competitiveness," the study stated. "The new map increasingly resembles a quilt-work pattern of low-cost economies, high-cost economies and many that fall in between, spanning all regions."

Cost competitiveness in U.S. on the rise
The study broke down the countries it analyzed into four distinct groups - rising global stars, holding steady, losing ground and under pressure - according to the cost competitiveness shift created by the myriad factors listed above. The U.S., along with Mexico, were the only two countries in the "rising global stars" category, regarded as such due to wage growth, as well as stable productivity and energy cost advantages. China, long a hub of U.S. manufacturing concerns, fell into the "under pressure" category, with declining cost competitiveness due to instability and a lack of positive economic factors. Brazil also fell into this category, with the study noting that manufacturing costs there now exceeded those of many Western European countries. 

The study went on to suggest that regional manufacturing could become increasingly prominent, with more American- and European-based businesses moving production to facilities closer to home. It could also mean that manufacturing could end up being more contextual. Some Asian electronics manufacturers, for example, are starting to move production facilities to North America, CBS reported. The rise of omni-channel commerce may also drive changes to the current system, with requirements to move goods faster and with less notice necessitating that enterprises have hubs closer to home.

This shift could have far-reaching trickle-down effects, especially where order management and transportation management are concerned. Overseeing large global supply chains isn't easy, and many organizations struggle to identify areas of cost-inefficiency and barriers to growth. They will have to reevaluate supply chain centers and the networks that stem from them if they want to remain competitive, and if this study is any indication, there could be massive changes coming up that will reverberate around the supply chain industry.


If you liked this article, check out others from Lightwell:

Learn more about how to optimize your company's supply chain management for chaing dynamics in manufacturing: