Did COVID Change Supply Chains Or Were They Going Domestic Already?

We reached out to supply chain consultants to gain insight into what preparations businesses who ship should make if they have to shift to domestic suppliers. What we found is surprising!

The responses we got focused heavily on how reshoring (or nearshoring) had already been a trend, with many developments leading the charge. The pandemic, it seems, has only added fuel to the fire. 

John Boyd, Jr., from corporate consultancy firm The Boyd Company, told us the "reshoring of manufacturing and the supply chain overall has been trending well before COVID-19. Now, the trend has accelerated, and competition created by the 'Buy American' mantra is creating shortages in a number of sectors, most notably in the critical medical devices & supplies sector. That said, it is essential to source early and to source hard."   

The concept that you must source overseas for cheaper goods and materials also appears to be changing. In our post How Will Reshoring Change Parcel and Freight Shipping?, we cited research that the profit argument for having manufacturing based in low-wage countries is "countered by the increased offshore cost of labor, logistics, and higher coordination efforts. Inadequate quality and flexibility in terms of shorter lead times, effective response to demand volatility, and supply chain resilience are driving back shoring from Asian countries." 

FreightPOP CRO Justin Dickson further points out:

"While the cost of goods may be cheaper coming in from China, isn't the cost of pulling in ocean containers internationally to the US much higher?"

International shipments often involve:

• Product delay costs
• Freight Forwarder markups
• Zero visibility on shipments
• Elongated cash cycles

Cost issues aside, businesses that ship should keep in mind that there are multiple legislative proposals out from both sides of the aisle looking to incentivize companies to bring supply chains back to the US. There are many pressures at play to be aware of and prepare for.

Forces That Are Changing Supply Chains

Harvard University lecturer and author Vikram Mansharamani told us:

"Shortened (or domestic) supply chains are easier to manage, have a smaller carbon footprint, and are, thanks to technological advancements, no longer at a major labor cost disadvantage." 

He further shared with us in a recent CFA Institute webinar some of the forces at work that are leading to reshoring. He says technological advancements have enabled greater output and effectively put "productivity on steroids." Efficient manufacturing technologies and automation are replacing lower-wage production in many industries. He adds that economical and productive alternative energy sources are enabling manufacturers to bring production costs down, making domestic production more profitable than in years past.

Mansharamani also feels that geopolitical issues and trade wars are changing how companies decide to source, noting that it is not only the US-China rivalry impacting things. There are potentially huge impacts with electronics supply chains due to the current Korea and Japan trade disputes. He says all of this, coupled with COVID, has escalated supply chain changes.   

Mansharamani also indicates that "just in time" supply chains are being replaced in boardrooms by "just in case" supply chains. Large companies are not seeking out the cheapest labor anymore, but are looking for resilience. Companies are asking, "How tariff-proof is my supply chain?" and placing a higher priority on efficiency and security. He says regionalization, if not outright domestic sourcing, is becoming more favored than globalization.

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How To Prepare To Source Domestically 

Domestic sourcing can be an opportunity for businesses who ship. Some benefits include better visibility of your supply chain, the ability to use existing contracted or partner rates, flexibility to troubleshoot and reroute shipments, and more automation potential. 

To prepare for a potential influx of domestic shipping, we advise shippers to:

• Centralize your data
• Use shipping software (aka TMS) to pull warehouse, order, and supplier information together in one hub.
  

• Prepare to leverage your domestic negotiated carrier programs
• Eliminate supplier markup charges on domestic inbounds by using a system that allows you to provide your own shipping account number on shipments.
• Ensure your TMS can track the movement of those inbounds to increase control and visibility of your orders.
  

• Prepare to scale   
• Ensure your TMS can integrate with your current and future internal and 3rd-party systems. This helps you realize all the tangible ways to lower your freight spend, improve service levels, and reduce costs.
  

• Be agile
• Does your TMS allow for multiple users, locations, and carrier accounts?  
• Is your system customizable? 
• Can your system connect to hundreds of carriers, rate marketplaces, and ERP/WMS systems?

If you are already changing how you source or are preparing for a potential increase in domestic shipping, please check out our guide Digital Connectivity for Freight & Shippers. We outline what shipping software can help your business accomplish, from warehouse functionality and carrier management to automation, customer management, and managing rates.