How to Gain Market, Competitor and Customer Intelligence When Bringing the Supply Chain Closer to Home
By Rick Claar, President, The Martec Group
Who says you can’t go home again?
Reversing a trend that dates back to the 1960s, suddenly a global pandemic, supply chain disruptions, unrest in Ukraine, and proliferating cyber crime have many companies considering the benefits of bringing production, manufacturing, distribution and even raw material sourcing back to domestic shores.
Three related strategies — commonly defined as reshoring, onshoring and even nearshoring — are being widely investigated to inject greater certainty into a value chain that has shown signs of integrity vulnerability in recent years.
But what if a company’s “home base” is a land largely foreign to itself? Having spent decades exploring offshore alternatives to manufacturing, packaging, production, raw material mining, supply sourcing, labor and more, the act of bringing any or all of the supply chain back to the U.S. can bring as many unknowns as did offshoring to Japan, China, Mexico and other foreign nations between 1960 and 2000.
Company leadership invested a great deal of time, scrutiny and resources to understand the foreign country they were moving into to realize cost savings and efficiencies, so as to minimize risk and disruption to its operations while offshoring. Now that the pendulum is swinging back to explore the myriad benefits that reshoring offers companies across the industrial spectrum, a whole new round of rediscovery and investigation becomes necessary so that companies don’t pursue strategies without knowing the full range of cost and benefit such endeavors will truly require.
(Back) Into the Great Unknown
Among the countless tolls the pandemic has had on the world, the global disruption to normalcy revealed some hard truths and hidden flaws of the globalization and offshoring models. Supply chains were disrupted, raw material scarcity proliferated, logistics costs skyrocketed, and the global markets became crippled worldwide. Everything from personal protection equipment (PPE) to pharmaceutical materials, and from computer chips to basic goods and materials, fell victim to shortages, transportation challenges, international fiat, and labor shutdowns. What had long seemed to be a safe and smart strategy (offshoring) was suddenly revealed to be a critical liability for many.
Fortunately, both governments and the private sector took action…and continue to do so to this day.
At the government level, we have seen lawmakers and the administration take measures such as The CHIPS Act, a $280 billion investment to, in part, support the reshoring of semiconductor chip production and material sourcing. Such initiatives and others are being implemented to protect against international shortages that relied heavily on production in China and other countries, which then experienced critical scarcity that delayed the production and sale of automobiles and more here in the U.S. Similarly, the Inflation Reduction Act contained provisions that offer advanced manufacturing tax credits for green manufacturing initiatives being explored domestically in the U.S., with others incentivizing the reshoring of pharmaceutical and PPE production back to the States.
At the industry sector level, the technology sector in particular is experiencing a reshoring trend out of concern for intellectual property that is being compromised — and in some cases stolen — as the result of decades-long offshoring to places like China (and others), which has been accused of illegally obtaining, using and sharing trade secrets and patent-protected IP.
Down to the company level, businesses across sectors are reconsidering not only the economic impact of offshoring, but the ecological impact as well. When measuring the cost and environmental impact of offshoring raw mineral acquisition, transportation and fuel costs (both financial and environmental), and international labor policies and conditions, a new calculus is being made as to what makes improved and longer-term strategic sense for the company, its employees, its customers, the environment, as well as the bottom line.
There will be tradeoffs to identify and evaluate, and not all of them present themselves as obvious by studying a spreadsheet alone.
Look Before You Leave
When considering whether to reshore/onshore — or, relatedly, to nearshore (bringing manufacturing, production, distribution, etc. closer to home, say in Mexico or Canada) — it is critical to understand the entire and overall cost implications. Make sure the strategy team is evaluating the complete and entire data set, along with potential unknowns and unforeseens that will factor in, both near-term and long-term.
Consider potentialities such as these, relying on sound information gathering methodology:
- Scrutinize the entire value chain. It’s more complex than evaluating the cost of goods sold by offshoring versus that of onshoring. Should the company completely disrupt its current modus operandi, how will the new way of doing business impact:
- transportation expenses and tradeoffs, including fuel?
- taxes and tariffs?
- higher warranty claims that might come from new production methodologies and bringing new teams up to speed?
- stock outages or service disruptions during the transition phase?
- lost revenue due to value chain pricing changes and other expenses?
- construction costs, labor expenses, training and knowledge transfer, etc.?
- Know where you’re going. Where will the new domestic facility go, and how will you know you’ve chosen the optimal location? Studies should be done and research should be conducted to reveal opportunities or risks that might not be immediately apparent. There are reasons certain geographic locations become “hotbeds” of various industry sectors, such as The Motor City, Silicon Valley, The Rust Belt, The Research Triangle, to reference only a few. Explore your options, and understand them completely.
- Know thy customer. It could be dangerous to presume how reshoring will be perceived by a loyal (and potential) customer base. Assumptions that such endeavors will be received and perceived negatively or positively should be challenged and verified. A Customer Intelligence study will either reveal hidden pitfalls, confirm assumptions with confidence, or even bring to light impact you hadn’t yet considered but which was voiced loudly by the customer during research and conversation.
- Pricing Analysis will provide intelligence on whether the market can willingly bear price increases that might result from higher production costs.
- Emotion Intelligence study may reveal negative or positive emotions. Perhaps “Made in America” will mean more, emotionally, than does a modest price increase. Or perhaps the opposite is true. Better to know first than learn later, after the expensive reshoring process has already occurred.
- What is the competition doing? Competitive Intelligence studies should be considered so that your company is evaluating its own options against what the competitive landscape is doing and considering. This research will offer the confidence companies are looking for, whether they are trying to be leaders, innovators, and disruptors in their sector, or whether they instead prefer to watch competitors take the proverbial pioneers’ arrows. Also of consideration is whether reshoring or nearshoring positions the company in a new competitive market, with new and unknown competitive forces presenting novel and distinct challenges and opportunities all their own.
These trends will be most interesting to observe in the coming months and years, as governments, industries and companies grapple with the various tradeoffs associated with bringing the supply chain closer to home. The overarching lesson, perhaps, is that, just when you think you understand the world around you, everything can change in an instant, whether you’re paying attention or not.
To be forewarned is to be forearmed.
Rick Claar is President of The Martec Group, a global market research and consulting firm.Contact Rick at [email protected].