Ready for Rightshoring? The Tools and Strategies You Need to Help Your Supply Chain
09/13/2021
The pandemic shined a light on the need for supply chain resiliency. Enterprises that failed to put enough emphasis on meeting the challenges of disruption were hit hard.
As supply chains recover, businesses are evaluating “rightshoring” — sourcing from the optimum location for the need, rather than blindly going down one route or another, or not considering the long-term consequences. According to a recent Bloomberg Businessweek report, some companies call it “allyshoring” or “friendshoring” to include trusted sources outside of the US.
Regardless of the label for this emerging strategy, it is clear that the blind globalization of supply chains is ineffective. And now, a lingering global health crisis highlights the business continuity complexities of permitting any one country to dominate sourcing.
To boost stability, enterprises will always need to balance risk against cost and opportunity. As a result, some will revisit sourcing strategies and adopt a “country plus-one” approach. Others will maintain the status quo because the time and effort to find new raw materials and production sources takes years, potentially jeopardizing long-term plans.
While broad-based risk mitigation is critical, isolated disruptions — earthquakes, wars, floods, hurricanes, geopolitical tensions, terrorist actions — don’t often elicit a robust systemic response. As such, the impact of these events on businesses’ sourcing strategies has been surprisingly muted. Businesses vow to improve resiliency in the wake of disruption, but little if any change occurs.
Take a Deep Dive into Your Sourcing Strategies
As we adjust to a post-COVID business environment, leading enterprises are closely examining their sourcing processes to implement strategies such as rightshoring. Therefore, it’s best to establish some simple guidelines when evaluating rightshoring, said Jamie Ogilvie-Smals, VP of Services at GEP. He offers three suggestions:
- Clearly understand the objectives of a revised sourcing strategy – improved resilience, trade friction avoidance, sustainability and cost savings are some examples
- Develop specific sourcing plans for the execution of high-risk, high-opportunity categories, products and components
- Consider the big picture
While a solid foundation is critical, your rightshoring approach needs to be flexible and tailored to the needs of your enterprise. In a complex world, sourcing requires careful consideration. There isn’t a default position.
Rightshoring is about devising the best sourcing solution for the product, category or component under consideration. Rightshoring analysis involves an extensive set of questions and criteria that illuminate a wide range of possibilities.
When evaluating sourcing options, procurement professionals must look beyond costs — quality, service and reliability are part of the mix. From procurement teams to corporate boards, enterprises are paying attention to consumer sentiment by focusing on sustainability issues.
Just as with cost, sourcing decisions should not strictly revolve around countries. Enterprises source from suppliers, not countries. That isn’t to say country shouldn’t factor into sourcing decisions, but enterprises should not take a narrow view.
Making the Business Case for Rightshoring
Management will naturally want a breakdown of the ROI when it comes to rightshoring. To start, there’s an immediate tangible benefit in terms of delivery on objectives.
A review of sourcing strategies can identify opportunities to improve efficiency, which impacts the bottom line.
“Procurement people know that the longer that sourcing parameters have gone unchallenged or unchanged, the more likely it will be that there is an opportunity to be seized,” Ogilvie-Smals said. “What might have been optimal 10 or 15 years ago will almost certainly not still be optimal today.”
The potential to scale the benefits of rightshoring is “huge,” according to Ogilvie-Smals, because “a business is potentially optimizing large swathes of its supply chain.”
Automation Drives Sourcing Innovation
While the benefits of updated sourcing practices are clear, change can’t happen without a solid technology platform. A considered approach to technology can make it far easier for procurement teams to deal with a deluge of changes amid a sourcing strategy review.
There are other areas where technology can help, as well. For example, knowing the location of a part or product is at any given time is expected in today’s global environment. Enabling visibility and transparency through technology enables greater flexibility in scheduling and supply optimization.
Automation also eases the burden of dealing with new suppliers in unfamiliar countries, which has become the norm in the wake of supply chain disruptions.
While technology is critical, blindly applying automation is rarely the answer. Don’t automate a broken process. Fix it first and, only then, automate it.
For help evaluating rightshoring initiatives, contact GEP.
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