Many firms will engage in overstocking to hedge against shortages to help them prepare for demand. It doesn’t mean the end of globalization, as some suggest, but instead a reexamining of supply chain dynamics, with a broad shift to regional manufacturing. Managing the supply chain crisis requires a range of different moves and strategic changes for manufacturers and suppliers. and Canada to assist with the needed repair or remediation of any products created in Mexico. They can also leverage the closer proximity to the U.S. And multigenerational family structures often give companies access to dedicated workforces that stay in the area.Ĭompanies moving production to Mexico can ensure optimal productivity by taking the time to understand and respect local customs and needs. In Mexico, companies have access to an established manufacturing infrastructure, as well as competitive labor costs. Mexico is a logical alternative to the challenging environment found in many Asian manufacturing centers. For example, toymaker giant Mattel announced in March 2022 a planned consolidation and expansion project in Mexico that will include a 200,000-square-foot facility and employ approximately 3,500 workers. Because of the pandemic and probably the situation in Ukraine, the supply chain that comes from Asia is moving to Mexico.” Escandon’s comments reflect robust growth in Mexico-based manufacturing, especially in areas near the U.S. Overall, the pandemic has proven that we have less resilience with just-in-time practices, with low lean inventories now driving shortages.Īs Julio Escandon, CEO of Monterrey-based lender Grupo Financiero BASE, noted in April, “It’s a year of big opportunities. Higher fuel costs and transportation capacity issues are two examples that immediately make just-in-time manufacturing more costly. The forecast’s accuracy declines in step with the length of the predictions, meaning manufacturers must abandon the standard just-in-time delivery for many market segments as it does not withstand crises. This puts enormous strain on operations leaders to assess what consumers or business partners might require several months in advance. Often the problem is not with the first tier but with the first, fourth, and fifth tiers.” His comment sheds light on the domino-effect issues with the supply chain, where limited visibility into downstream problems causes the entire system to slow to a halt.įacing long lead times due to low product availability forces companies to commit more capital further in advance. What does that mean? It basically means that a lot of companies have visibility into their first-tier suppliers-their direct suppliers-because they have a contract with them. This dynamic puts further strain on every stakeholder.Īlicke said, “The holy grail of supply-chain risk management is multitier transparency. The average cost of container rates has risen more than 500% since the pandemic began, reflecting the deep disruption for manufacturers and the higher costs and port congestion issues facing transportation firms. Higher costs drive up the price of essential products and create shortages of available products. The rising cost of logistics also complicates forecasting. Knut Alicke, a partner in McKinsey’s Stuttgart office, said, “The attention has shifted from not only being a function that is valuable when something goes wrong but can really help us to be better.” His comment points to the need for manufacturers to review and improve their supply chains through better technology. On the commercial side, if producers receive a non-conforming product, the lead time for adequate repair, replacement or remediation is more sustainable.Īccording to McKinsey, supply chain disruptions cost the average firm 45% of one year’s profits over a decade. customers creates a competitive edge with quicker delivery and installation. Shifting from Asia-based manufacturing impacts commercial markets just as much as consumers. Scott Price, president of UPS International, said that there would be “a migration to new supply chain models”-meaning goods producers will relocate existing capacity to factories closer to their consumers. Political challenges in China are driving the movement to other countries for parts.
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