Meeting Supply Needs for Many will Require Mix of Global and Regional

Coming out their virtual supply chain conference for the EMEA region this week, the analysts at Gartner are saying companies need to rethink network design strategies.

Supply Chain Digest Says...   “It has been the consumer’s need for predictable supplies, despite volatile demand patterns, that has led to a rise in local sourcing for retailers,” Gartner observes. What do you say? Click here to send us your comments   Click here to see reader feedback

More specifically, in a press announcement released in conjunction with the conference, Gartner says companies must develop more regional sourcing strategies, but do so without “diluting the cost or competitive advantages of existing global networks.”

That would seem easier said than done.

Global trade, especially Western countries sourcing goods primarily from China but also other low cost countries, soared for more than a decade before slowing during the Great Recession of 2008 and 2009 and then beyond. Global trade, however, has tripled in the 21st century, from $7 trillion to $21 trillion.

But with a protectionist bent emerging across the globe in recent years, and concerns in many companies about being too reliant on China, trade “has become less globalized compared to a few years ago,” Garter says.

A recent Gartner survey found that 51% of supply chain leaders expect that national interests and pressure to favor domestic operations will increasingly influence future supply chain decisions.

“A successful supply chain now integrates regional supply chains into global networks,” Gartner adds.

As a result, Gartner says companies need to take one of two paths, depending on their product markets.

The first path is for companies selling products that it calls “scale-based,” meaning sectors that are driven by customer demand, such as clothing, electronic devices and groceries. They are and must continue to add regional sourcing, Gartner says.

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“It has been the consumer’s need for predictable supplies, despite volatile demand patterns, that has led to a rise in local sourcing for retailers,” Gartner observes.

Analyst Kamala Raman added that “a company’s ability to fulfill demand does not come from only a global network, or only a regional network, but a blend of both.

The other path is for companies in what Gartner calls strategic industries, such as the semiconductor or high-capacity battery sector. These companies can’t make decisions based on cost alone. They are also restricted by national security concerns or simply an impossibly high demand for innovation.

Here, Gartner points to public-private partnership often being key. An example: The CHIPS for America Act provide $52 billion in US federal investments to strengthen domestic semiconductor research, design and manufacturing.

“Supply chain leaders in strategic industries must distinguish between the decisions they control, the decisions they can influence, and the decisions made for them by industrial or national policies,” Gartner says.

In the end, Raman says, “CSCOs have to find a way to balance the global supply chains that have worked well - and still do - with regional additions that place people, planet and purpose above short-term profits.”

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