This is the sixth and final installment in our series on where the global economy is heading in 2023. It follows recent articles on industrial action, inflation, energy, food and the cost of living.
The global supply chains that modern companies depend on were turned upside down three years ago after COVID-19 emerged in China. The spread of the new respiratory illness and efforts to slow it resulted in shortages of everything from toilet paper and prescription drugs to refrigerators and semiconductors. Even today, retailers continue to struggle to keep some products, including household items like Tylenol and eggs, in stock. Overall stress in supply chains remains high.
Because shortages, delays and bottlenecks can hurt their bottom line, many companies that didn’t go bust during the pandemic have been rethinking their supply chains and implementing changes to make them more resilient.
As a supply chain expert, I have observed three major shifts in how companies manage their supply chains – changes that will significantly affect consumers and businesses alike.
1. Bringing supply chains home
One of the main downsides of having supply chains that span the globe is that they are more vulnerable to problems outside of a company’s control, such as an earthquake that strikes a key supplier or a citywide lockdown that shuts down factories.
That’s why companies in every industry have been working to relocate suppliers and production facilities closer to home or geographically spreading them out so that they’re not so dependent on one country or region. The goal is to ensure they can withstand disruptions and maintain business continuity.
The pace of reshoring – the process of shifting production and manufacturing to domestic locations from overseas factories – has surged in recent years. Over 60% of European and U.S. manufacturing companies expect to reshore part of their Asia production in the next three years, according to a survey conducted in early 2022.
A more recent survey found that U.S. transport and manufacturing reshored about 350,000 jobs in 2022, up 25% from the previous year.
This trend not only has support from government subsidies but retailers as well. Walmart, one of the world’s biggest retailers, has committed to help its suppliers reshore by increasing its purchases of U.S.-made products by US$350 billion over the next decade. In the U.K., a survey of 750 small businesses found that 2 in 5 are considering switching to domestic manufacturers to avoid COVID-19 disruptions and high shipping costs.
At the same time, other companies are trying to diversify their sources of supply, often away from China, which until recently was regularly locking down whole cities to maintain its now-lapsed zero COVID-19 policy. India and Vietnam are popular destinations.
U.S.-based Apple, for example, frustrated by product delays in China, where 98% of its iPhones are made, recently started producing models in India. In addition, Foxconn, its largest supplier, agreed to expand production in Vietnam. Overall, U.S. manufacturing orders from China are down 21% since August 2022.
In Europe, carmaker Volvo announced in July plans to open its first European factory in 60 years in Slovakia. And leaders of the U.S., Mexico and Canada are meeting to discuss ways to encourage more investment in the region, which may result in more reshoring.
