Dive Brief:

• A regional strategic approach is more likely to provide operational flexibility when it comes time to respond to trade disruption caused by shifting economic and regulatory frameworks, according to the Boston Consulting Group's 2019 Global Manufacturing Cost Competitiveness Index​.​ This is in contrast to locating production in "handful of low-cost countries," the report concludes.
• Supply chain managers should balance considerations like cost and infrastructure when leaving China to re-consolidate operations in another low-cost manufacturing country, or reshoring to the U.S. the report said.
• "Companies are starting to realize that China is not a risk-free alternative anymore," Johan Gott, senior principal at A.T. Kearney, told Supply Chain Dive. "Even if the U.S. and China will come to an agreement around the current trade negotiations, I think all companies have started to realize that this is a much riskier relationship going forward than we thought."

Dive Insight:

The report suggests supply chain managers consider placing manufacturing capabilities closer to customers — whether that entails shifting production to a lower cost country in Asia, investing in operations in Mexico or, the less common approach, reshoring to the U.S.

To manage a pivot in, or away from China, "the ability to adapt your manufacturing base to different markets is a real strategic advantage, and one that should not be taken for granted," Will Kletter, a project leader at BCG, told Supply Chain Dive in an interview. "If I were a company trying to assess my own ability to go to a different market, the first place I would look is how has that worked for me in the past, what challenges were specifically faced, what competencies internally or experiences might I be missing. And how could I address those."

This is particularly important for companies looking to shift their supply chains within Asia, he said. Manufacturing exports from Vietnam to the U.S. have increased significantly since 2018, however the capacity, productivity and quality depends on the types of goods being produced. But the infrastructure and scale in China may be worth the cost for more complex items.

Kletter recommends engaging in a cost-benefit analysis when determining whether and how to manage a globalized supply chain — the more varied the footprint, the more regulatory risks a firm could be exposed to.

BCG's index does not factor in the impact of tariffs on manufacturing competitiveness between countries. While its U.S. index results improved by 4% compared to 34 other countries, they come alongside multiple purchasing manager's index (PMI) reports from the Institute for Supply Management and IHS Markit which cite the trade war with China, and associated tariffs, as drivers of the U.S.' overall manufacturing decline.

The improvements in U.S. cost-competitiveness BCG found could be the result of supply chain managers' investments in technology paying off, however.

"As manufacturers realize what can be achieved with technology such as AI, IoT, robotics, and additive manufacturing, they are sourcing manufacturing closer to the customer to create a customer experience advantage (rapid customization and delivery) with a lower cost base," Lisa Anderson, a consultant with the LMA Consulting Group, recently told Supply Chain Dive.

Adidas attempted using technology to power localized manufacturing efforts through its Speedfactories initiative, which used automation and 3D-printing technologies to produce and ship shoes faster than its traditional factories. While the program is ending due to elevated costs and other issues, some supply chain experts make the case that regionalizing operations can shorten supply chains and, if well-executed, reduce the cost of serving customers in key markets.