“Global supply chains were being disrupted long before COVID-19 emerged”, commented Kamala Raman, Senior Director Analyst with the Gartner Supply Chain Practice, adding: “Already in 2018 and 2019, the US-China trade war made supply chain leaders aware of the weaknesses of their globalized supply chains and question the logic of heavily outsourced, concentrated and interdependent networks. As a result, a new focus on network resilience and the idea of more regional manufacturing emerged. But this kind of change comes with a price tag.”

Tariff Costs

According to Gartner the results of the survey reveal several reasons for the decision of moving the business, and COVID-19 is not the top one. In fact, it just adds pressure to a supply chain which was already facing problems. If in the last decades, China has been the top destination for low-cost manufacturing, which allowed the country to set itself as a key source of supply for almost all major industries, things seem to be changing: “We have found that tariffs imposed by the US and Chinese governments during the past years have increased supply chain costs by up to 10% for more than 40% of organizations. For just over one-quarter of respondents, the impact has been even higher. Popular alternative locations are Vietnam, India, and Mexico”.

Resilience

Only 21% of the survey respondents believe that they have a robust network, which translates into agility to shift sourcing, manufacturing and distribution activities around quickly. However, 55% expect to have a highly resilient network in the next two to three years. And this could be the refection of the desire to have a network which is more resilient and reacts more quickly and efficiently to disruptions such as Brexit, the trade wars and COVID-19.

Closer to Demand

One-quarter of the survey takers stated they have already re-localized manufacturing to be closer to their demand. Despite the cost of adding more players to the ecosystem and increasing the overall network complexity, if set up in a correct and suitable way regional supply chains can alleviate delays and shortages in times of disruption. “Many Western organizations will have to explore new forms of automation on the factory floor to decrease the costs of near- or onshore production. Some also favour a partial option, such as manufacturing in Asia and moving only the final assembly closer to the customer,” Ms. Raman concluded.

About Gartner

Gartner, Inc. is a Connecticut-based (US) research and advisory company and a member of the S&P 500.