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Supply Chain Risk Perception is Taking Manufacturing Back Home?

Franklin Roosevelt once said "Poverty anywhere is a threat to prosperity everywhere". In these days of global supply chains, I would extend it further to say that "supply chain disruption anywhere is a threat to entire supply chain". Gone are the days when we could think of local issues and local solutions. Now anything major happening anywhere in the world has its ripple effects all over the world. The Tsunami in Japan resulted in delayed delivery of Toyota cars in India-just to site an example. So one's ability to anticipate significant events both natural as well as man-made and to mitigate the risk emanating from those events has become paramount. In other words, management of supply chain risk has become the most important driver for supply chain planning.

What is this Supply Chain Risk Management, according to Wikipedia, "... is a discipline of risk management which attempts to identify potential disruptions to continued manufacturing production and thereby commercial financial exposure"

The recent surveys are all indicating a tendency of US manufacturers to move back manufacturing units (and IT operations) back to US from China and India. In some cases the movement is not directly to US but to near-shore destinations like Mexico. I believe even this is also an outcome of this supply chain "risk perception"

Let me further substantiate this. Some of the most obvious reason for this movement are said to be rising wages in Indian and China - going up at rate of 17-20 % as against 2-3% in USA, rising freight cost and comparatively low employee attrition in nearshore destinations like Mexico compared to India in IT industry. There is more to it- companies are increasingly realizing that it's not just about labor arbitrage and raw material cost. The key consideration is total cost of ownership. This also factors in cost of Supply Chain Risk. Companies are trying to minimize the Bull-whip effect- A downturn or a variation in household consumption is likely to translate into a larger downturn in manufacturing. Added to this, the geo-political uncertainties in the region add to the cost of supply chain risk. The idea is to keep the length of the supply chain short so that this impact is minimal and therefore the cost of supply chain risk is also reduced.

Are these US manufacturing companies doing the right thing? Well, if they had setup operations in south Asian countries just for leverage the tactical cost advantage, then yes. The labor arbitrage opportunities will soon disappear going by trend in reducing the wage gap between developed and developing economies. But is that good enough reason to move away the production from some of largest markets in the globe?

Instead shouldn't they be focusing more on supply chain risk mitigation thereby making the existing supply chain more resilient? Keen to hear more views on this.  

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