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The Impact of the Supply Chain Crisis on Domestic Manufacturing Strategies

The current supply chain crisis is forcing manufacturers and suppliers to reexamine their operations and make strategic changes. This doesn't mean the end of globalization, as some suggest, but instead a shift to regional manufacturing. For U.S.-based firms, there’s a confluence of factors—from geopolitical issues to high shipping costs—driving the crisis. In turn, it is pushing many U.S. providers to rethink their manufacturing processes and how they forecast and manage logistics.

The Covid-19 pandemic has forced companies to confront the vulnerabilities of their supply chains like never before. Global supply chains were already being disrupted long before the pandemic emerged, with the U.S.-China trade war making supply chain leaders uncomfortably aware of the weaknesses of their outsourced, concentrated and interdependent networks. The pandemic further exacerbated these vulnerabilities, leading many companies to reassess their manufacturing strategies. A Gartner survey of global supply chain leaders in February and March 2020 found that 33% said they either had moved manufacturing and sourcing out of China already or planned to in the next two to three years.

The U.S. manufacturing’s persistent abiding dependence on Asia has left U.S. firms vulnerable to supply disruptions, as seen now in the current crisis. To mitigate this risk in the future, U.S. companies are considering supply chain reshoring as apart of their risk mitigation plans. The current crisis can be seen an opportunity for domestic manufacturers to reassert themselves. By investing in regional manufacturing, they can help create jobs and fuel economic growth. This will be essential in rebuilding the economy post-crisis.

Nearshoring and the shift in production closer to U.S. customers is growing in popularity for many reasons. One is that close manufacturing proximity creates a competitive edge with quicker delivery and installation. It also reduces the risk of supply disruptions caused by geopolitical issues or other factors where the supply chain is at the mercy of their international supplier.

Mexico has been pulling a lot of eyeballs and drawing attention from companies looking to shift production closer to the U.S. Mexico has a well-developed infrastructure and a skilled workforce. Additionally, labor costs in Mexico are relatively low compared to other countries in North America. As a result, companies that move production to Mexico can ensure optimal productivity.

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