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- Sustainability
- Sustainable Supply Chain
4 Ways Companies are Rethinking Their Supply Chains
Learn how more resilient supply chains are shaping industries
It’s safe to say ‘supply chains’ weren’t a topic of conversation around most dinner tables two years ago. However, while supply chain disruptions did occur prior to 2020 whether due to geo-political tensions or international trade policy shifts, COVID-19 stressed global supply chains on an unprecedented scale – making it difficult to get everything from toilet paper and flour to electronic components, steel or timber. Companies are quickly accepting the new reality that the virus isn’t going away any time soon and that supply chain challenges will persist for longer than expected. That’s why rethinking supply chains and reshaping business models to be more resilient for the future will be a major focus in 2022. Here’s what our experts in global trade and receivables finance are seeing.
Reshoring and Regionalization
The move by companies towards greater investment in nearshoring– or even reshoring – to where they distribute product is definitely increasing. For US companies, this could be increasingly growing sourcing in Central America or the North American corridor, for example, as we're seeing some in the tech industry doing. It's all about adding security to the supply chain to overcome disruptions easier, though the question remains on balancing the benefits of diversification versus onshore or offshore concentration for any sourcing strategy.
Locking Down Shipping
Moving labor-intensive manufacturing from a low-wage area closer to where products are distributed may not always make sense. We're seeing companies get more creative with distribution models – switching to air transport, locking in capacity with shipping partners or those that have capacity to do so, even chartering their own ships.
Vertical Integration and Outsourcing
Vertical integration has been a growing trend in some industries e.g. automotive, commodities and even retail, notably driven by cost gains, quality assurance etc. and now, for an assured source of supply or control over distribution. The strategy is dependent on the industry, for example, criticality or the source of raw materials or logistics of distribution. Still, we expect it to continue and expand for a broader range of businesses who want greater self-sufficiency or control over the final distribution channel.
Supply Chain Visibility
All this goes hand in hand with truly investing in supply chain transparency and visibility. Recent studies suggest that many companies don't have visibility beyond their Tier 1 suppliers. Digitizing end-to-end supply chains will help add visibility into where suppliers are – from Tier 1 right down to the first-mile producer – and help uncover hidden risk. Importantly, greater supply chain transparency can very well complement greater control over driving sustainability in supply chains. Sustainable business models are built on sustainable supply chains and that is an accelerating trend that is defining future business models.
In today's world, competition is not coming just from a better product. It's coming from better control over supply chain management as well
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Disclaimer
This information is being provided for informational purposes only. It is educational in nature and not designed to be a recommendation, endorsement, or offer for any specific product, service, strategy, or other purpose. The material provided may be based on the individual opinion of the author and may differ from other opinions expressed by other members of the HSBC Group, including its Research Department. It has not been prepared in accordance with regulatory requirements to promote the independence of investment research. Any information contained in this material is not and should not be regarded as investment research for purposes of the rules of the Securities Exchange Commission, or any other relevant regulatory body.