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From Globalization to Regionalization: Optimizing Your Supply Chain


Published on January 26, 2021

Around this same time last year, I wrote an article regarding the importance of supplier diversification. In that article, I talked about how important it was to focus on qualifying other suppliers as a way of diversifying your supply chain and reducing your risk. This year, the focus on regionalizing your healthcare supply chain has taken the front seat.

In the simplest terms, regionalizing your supply chain is critically important for three primary reasons:

  1. Risk Reduction, a shorter and less complex path from producer to consumer, results in less exposure to factors out of your control, such as trade wars, tariffs and global pandemics.

  2. Shorter time to market as lead times associated with ocean shipments or complex logistics paths are removed. A reduction in the cost of logistics is a bonus also gained through this approach.

  3. Reduced inventory, freeing up needed space for capital expansion and growth plus an improved cash position to support.

Prior to 2020, many supply chain efforts were focused on globalization, which allowed for better negotiation and economies of scale, and encouraged lower-cost manufacturing. The tradeoffs, including longer lead times and more complex logistics, were worth the risks. Now however, during a period of increasing trade barriers and in the midst of a global pandemic, regionalization is showing increased benefits and is a key priority for many supply chains. Companies can’t afford, financially or from a risk perspective, not to incorporate regionalization into their supply chain strategy.

The concept of regionalizing your supply chain, or organizing an in-region supply chain, is not a new concept, but has recently become more prominent with the increased complexities of international trade. Many countries are now prioritizing in-country manufacturing to support their local economies. Manufacturing strategies including China, For China[1] and labeling requirements such as Made in the USA[2] or Made in Europe[3] are challenging the ability to efficiently transport healthcare products internationally. Over the course of the pandemic, we’ve also seen drastic reductions in shipping capacity as the shipping industry cut capacity to remain profitable, and manufacturing facilities operating with limited capacity due to COVID-19 related work force reduction. This adds supply chain complexity, not to mention added costs, to ensure finished goods arrive on time. In a competitive market environment, speed to market is crucial, and logistical obstacles are often unforeseen and happen more quickly than globalized supply chains are able to respond. These are some of the reasons why regionalizing your supply chain has quickly become a popular focus of supply chain leaders around the globe.

If the current trade environment isn’t enough to encourage you to regionalize your supply chain, looking at the bottom-line savings should. While lower-cost manufacturing is still a goal in many industries, companies must measure the cost to produce goods versus the full cost of getting a product to the point of use. Additional costs come into play post production like higher tariffs, shipping costs and inventory investment. These costs aren’t always accounted for and can contribute to an overall higher cost to produce within a globalized system. By regionalizing your supply chain, you adopt a ‘profit first mentality’ which shifts the focus on the full process of going to market and can help you realize long term savings.

Changing supply chain strategy between globalization and regionalization is a complex process, often taking upwards of four or five years. Partnering with a reputable supplier with a global presence (with regional manufacturing and distribution) is a great way to provide needed flexibility and simplify the process.

Sources:

[3] https://ec.europa.eu/info/publications/made-europe_en

Brad McNett
Director of Global Procurement | Oliver Healthcare Packaging

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