Growing frequency of supply chain design reviews

Incidents are forcing companies to rethink more regularly

The result of the Brexit vote, the bankruptcy of Hanjin, the attacks on foreign firms in Ethiopia – numerous recent incidents illustrate that supply chains are under pressure. In combination with fundamental changes such as the digital transformation and the growing need for knowledge, this is forcing companies to review their supply chain set-up more often than before. It is increasingly common for a supply chain design study to be an annual activity. How should you approach that organizationally?

By Marcel te Lindert

The manufacturing industry is regaining ground in Europe and North America. Various towns and cities in former rust belts are emerging as innovation hubs where companies, universities and sometimes even government bodies are working together and sharing knowledge. The result is innovative products that are no longer manufactured in soot-stained factories with towering chimneys and masses of people, but rather in highly automated laboratories and clean rooms.

Those are the findings of Antoine van Agtmael and Fred Bakker. They embarked on a journey to visit ten ‘written-off’ industrial locations – five in Europe and five in the USA – which led to their book titled The Smartest Places on Earth. They are convinced that the European and North American manufacturing industry is entering a new era of competitiveness. The way in which companies, universities and governments are collaborating in these innovative hotspots will become the new standard. One example given by Van Agtmael is the Dutch city of Eindhoven. “Philips may no longer be producing bulbs in Eindhoven, but many spin-offs – including first and foremost ASML – are making great things there.”

Close to universities

Van Agtmael, founder of Emerging Markets Management, lives in the USA. Both there and in Europe, he sees not only spinoffs and start-ups flourishing but also traditional companies starting to invest in new factories once more. He mentions General Electric, for instance, which plans to start manufacturing aircraft engines in Mississippi close to a university. Another example given is Adidas, which is building fully automated footwear manufacturing facilities – or what Adidas itself calls ‘speed factories’ – in both the German town of Ansbach and Atlanta in the USA.

“The increasing automation of manufacturing processes is reducing the competitive advantage of cheap-labour countries like China. Other factors in favour of reshoring include the poor quality, expensive transport and long lead times associated with production in the Far East. Just look at the shipyards in China that are having to consolidate because of low sales. Ocean-based trade is no longer growing,” concludes Van Agtmael.

Another key reason for reshoring is the increasing importance of knowledge. Companies that manufacture in China are seeing their knowledge being lost and local competitors copying their products. They prefer to keep their knowledge to themselves, not least because the competitive dynamics are changing. “In the future it will be about manufacturing as smartly as possible rather than as cheaply as possible – meaning that both the products and the production methods must become smarter. More and more products include a digital component as well as a physical one. Robotization and 3D printing are creating new manufacturing methods, so we will see a growing number of companies setting up production activities close to university cities,” comments Van Agtmael, adding that the best universities are still in Europe and the USA. “China is of course improving in that respect but it will take a while before the country has caught up. Chinese universities aren’t focused on creative and integral learning, whereas that’s what we excel in here.”

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Read the full article in Supply Chain Movement 24 | Q1 – 2017

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