It’s 2021 – Do You Know Where Your Supply Chain Is?

The pandemic-induced supply chain disruptions of 2020 came as a surprise to many businesses. Now that the dust has settled, let this experience serve as a reminder of the importance of understanding and improving your own supplier relations. It’s 2021 – do you know where your supply chain is?

Digitization

Digitization allows for an unprecedented level of supply chain management. From anywhere in the world, firms can track not only inventory levels or the location of ships along routes, but also the specific sources of materials throughout intermediate steps. Tapping into this exceptional level of data availability is the first step in avoiding unpleasant surprises when disruptions arise.

Diversification

The most immediate remedy for supply chain vulnerabilities is diversification. Sourcing from several different suppliers can mitigate the impact of shortages or delays from any one individual supplier. Further, develop your relationships with suppliers. Strong working relationships and a level of trust will help you spot potential disruptions ahead of time, as your supplier will surely know about such issues before they work their way down the chain. Perhaps having greater visibility into your business expectations will help your supplier plan more accurately for your upcoming orders. Perhaps a closer relationship will result in preferential order fulfillment in the case of shortages. The goal is to be on the same team.

Near-sourcing

One specific supply chain trend that has accelerated due to the pandemic is near-sourcing. ITR speakers have been talking about this development for years, as production relocation trends have gradually stalled or even reversed. The shock of the global supply chain disruption in mid-2020 was such that even the most cost-sensitive producers began to see the advantages of sourcing materials and production closer to their end-use markets. There are two main lessons to learn from this experience. First, evaluate your own vulnerabilities to disruption in the global supply chain, and consider the value of nearer sourcing – even if at a higher cost basis. Second, consider whether this broader shift will open new opportunities for your business. Potential customers who have previously sourced overseas may be returning to your market – be opportunistic.

As always, if we at ITR can help you identify the impacts of these trends and formulate a plan, please reach out!

Lauren Saidel-Baker
Economist