Call it a flock of black swans.
You know about black swan events: those unpredictable forces that can lead to potentially devastating consequences. They’ve been swooping in with disturbing regularity. Past trade wars with and tariffs on China. The lingering pandemic. The stuck container ship blocking the Suez Canal. Clogged ports. Container shortages. Trucker shortages. Geopolitical uncertainty including Russia’s invasion of Ukraine. Surging inflation. Ongoing natural disasters and climate-change factors.
Our global supply chain has been dramatically disrupted. And, as we’ve previously reported in past blog posts, maybe the biggest supply chain stressor is that businesses—and in fact whole industries—have never been able to fully recover from each of these events. These forces are now overlapping with each other, almost like a domino effect.
In addition, by some estimates, China still controls more than one-quarter of the suppliers for big industries, including consumer electronics, chemicals, and textiles. Other industries face immediate challenges from Russia’s invasion of Ukraine: agricultural products, manufacturing, metals, and oil and gas. And of course, there’s the critical semiconductor shortage that’s challenging the automotive sector.
“We cannot allow countries to use their market position in key raw materials, technologies, or products to have the power to disrupt our economy or exercise unwanted geopolitical leverage,” Janet Yellen, U.S. treasury secretary, said earlier this year.
As a result, with an increasing awareness of how global events can interrupt supply chains, and the growing risks of depending on suppliers in far-flung countries, more companies are opting to bring back supply sources that are closer to home—so-called onshoring or reshoring or nearshoring. Some of these terms seem to be used interchangeably in various forums, but they each do have specific definitions.
What is Onshoring (or Reshoring)?
Onshoring, sometimes called reshoring, is the supply chain trend of relocating business processes and suppliers closer to home. Onshoring is the action of sourcing suppliers that are closer to consumption of the eventual end-use or finished product. It is the exact opposite of offshoring, in which operating and supply activities were established in another country to reduce labor costs.
Benefits of onshoring include greater control over supply bases, cost savings from reduced freight and transportation expenses, time-to-market savings from eliminating overseas shipping that can sometimes take prolonged periods hampered by factors such as bad weather and closed ports, intellectual property (IP) protection, and ITAR (International Traffic in Arms Regulations) compliance. With onshoring, companies can set up regional, more diverse, and even multiple supply sources to better meet their needs. In fact, in some industries, companies have decided to establish their own suppliers, such as automotive OEMs that are building factories for electric vehicle batteries.
On-demand production from digital manufacturers such as Protolabs is also possible with onshoring, which offers time-saving speed, cost-saving automation, low-volume production (no MOQs—a helpful benefit in this time of mass customization), and a closer-to-home supply source that’s nearer the consumption of the end-use product.
What is Nearshoring?
Nearshoring is the supply chain approach of outsourcing business and supply chain processes to nearby countries, often sharing a border, such as Mexico. Companies sometimes opt for nearshoring because it can sometimes still offer the reduced labor costs of traditional offshoring but can eliminate traditional offshoring’s long shipping times along with language and cultural differences.
Supply Chains are Evolving
As many news outlets have reported, the structure of the world’s supply chains is evolving as companies and industries seek to build resilience and manage their supply bases more proactively.
Along these lines, management consulting firm McKinsey & Co. advises constructing a digital twin of the most critical parts of a company’s supply chain as a way to simulate how a system will perform before it is executed.
Generally speaking, a digital twin is a virtual representation of an object or system that spans its lifecycle, is updated from real-time data, and uses simulation, machine learning, and reasoning to help decision-making. At Protolabs, we know about virtually creating a part (object) and here, McKinsey is talking about virtually creating a supply chain (system). Accordingly, think of it as virtually creating/modeling a system and identifying issues without having to spend the dollars or time to complete the real thing.
What’s ahead for the future of supply chains? Maybe a pivot away from global systems is in the works. Maybe a focus on regional, more diverse, and multiple supply sources. Whatever’s in store, we’re likely to continue to navigate even more change. As James Zhan of the United Nations Conference on Trade and Development wrote recently, “Global value chains will undergo a drastic transformation in the decade ahead.”
Rob Young is the product leader for injection molding at Protolabs. He has served in various roles at Protolabs for more than eight years.
