Fixing a broken global supply chain: the 5 ways companies are fighting escalating transport times and costs

Article July 03, 2024

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If you are a company in the consumer-packaged goods or industrial sector, you’re no doubt thinking about – perhaps even obsessing over – your supply chain. And rightfully so. After all, we don’t need to tell you that a cost-effective and smoothly running supply chain is paramount to business success. Nor do we need to point out that that your supply chain has likely been neither of those things, at least over the last five years given geo-political, pandemic, and environmental disruptions to manufacturing and logistics.

Perhaps, in years prior, your supply chain proved less of a headache. In fact, during the preceding two and a half decades, many companies flourished during a “golden age” of sourcing, when Asia became a hub of manufacturing given its lower labor costs, governments subsidies, and reliable inbound logistics. But those same companies are now facing significant sourcing hardships, caused by some of the issues with having an Asia-based supply chain: shipping constrains at the Suez Canal (the result of the Russia/Ukraine war), the insufficiency of Panamanian routes (caused by a drought at the canal), and the increased tariffs, costs, and delays imposed as a result of operating in China.

The instability of the global sourcing landscape has encouraged many of our clients to consider alternative strategies in an effort to mitigate Asia-related logistical risks, the top 5 of which include:

Top 5 strategies to mitigate Asia-related logistical risks

1. Exploring alternative shipping routes

There are many such alternative routes which bypass the Red Sea and Suez Canal. Unfortunately, most of these routes come along with increased costs, longer shipping times, or other less-than-ideal factors. For example, routes around the Cape of Good Hope take an extra 10–15 days of transport time and come with 20–30% in extra costs. Similarly, air routes tend to be 5–6 times more expensive. Leveraging the China – Euro Rail is faster but requires travel passage through Russian territory, and sea routes through the Arctic come with the risk of ice hazards which can increase both time and price.

2. Shifting manufacturing from China to other Asian locations

If re-routing from China won’t solve the problem, perhaps moving manufacturing from China to another Asian location with similar cost attributes, leveraging a consolidation warehouse, is a better solution? Our US and European clients have found that this alternative does help allay the steep tariffs that result from operating in China but does little to address the logistical routing issues referenced above.

3. Leveraging automation to optimize onshore manufacturing

As a result of the Asia-related complexities listed above, many companies are reexamining the feasibility of on- or near-shoring their manufacturing and logistics operations. Why would such an approach work now, when so many companies moved away from this costlier model years ago? In a word: automation. Advances and innovations in technology can reduce more costly North American labor concerns. Where labor cost is still an issue, many companies are leveraging the combination of automation paired with lower cost-states or are utilizing USMCA provisions to build in Mexico (which has the added benefit of enabling companies to avoid the VAT). Moreover, this more North American-centric approach needn’t just be limited to manufacturing alone, as companies can also better optimize their local warehousing network.

4. Embracing advanced planning

Beyond simply addressing the where, many of our clients are also investing in the how. These are business that are focusing on the data and analytics tools required to improve forecast accuracy, thereby enabling them to plan much further in advance to accommodate longer lead times. The increased inventory carrying costs have to be factored in but, sophisticated AI driven forecasting tools can increase forecasting by a few percentage points an mitigate the need for increased inventory.

5. Augmenting advanced planning with final product postponement

To offset some of the risks and increased inventory carrying costs, our most innovative clients are instead leaving the customization of final product to local value add operations where possible, thereby mitigating warehousing costs.

There is no silver bullet. Each alternative to the pitfalls posed by the global sourcing landscape comes with both opportunities and challenges. But that doesn’t mean there is nothing you can do. In fact, it’s imperative that companies with global supply chains identify the right combination of the five strategies above.

Accordion can help you develop, design, and execute a customized strategy that mitigates risk, decreases cost, and optimizes your supply chain.

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