OWP liVe REPORT

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S T R AT E G Y Smart ‘nearshoring’ offers lifeline for companies exposed to global shocks

Moving products and services closer to the point of delivery might mean losing out on some economies of scale, but it can help protect supply chains and even drive sales in uncertain times, explains Professor of Strategy and Supply Chain Management Carlos Cordon.

Why is nearshoring becoming popular even if it appears to be more expensive?

same thing happened with factories. For example, say a factory was built 20 years ago. It was ideal back then, but over the years, you introduced different products that needed new infrastructure and you eventually find yourself with an infrastructure that doesn’t make any sense. The difference is that now there is a window of opportunity to redo the family house – and this is what some companies are doing. Where the division falls has to be more about products. For instance, with an area of national importance such as food security, it makes sense to ensure you have enough local supply and to regulate for that. Where it gets harder is with products such as smartphones. Suddenly, during the lockdown these devices became truly fundamental to our lives, but there was nothing in place to ensure continuity of supply during a shock. Going forward, we will see areas such as pharma, food, cleaning and medical How can companies strike the balance between local and global?

It might be more expensive to source more locally but, in the current environment where we have seen panic buying and disrupted supply chains, it also means you will not lose sales. The issue is: Are we going to lose sales to our competitors after building our brands for so long? We also talk about the need for larger companies to show agility to compete against all the small niche brands that are appearing. Switching from global centers to local centers allows you to react more swiftly to these trends.

How has the pandemic accelerated the move to nearshoring?

This was already on the radar before the pandemic, but it accelerated this year because so many companies faced the same challenge: An over-dependency on global supply chains. For example, a factory in Germany might not have been able to make cars during the early peak of the pandemic because one small component was manufactured in China. For such a critical component, it now clearly makes sense to use a local or regional supplier. As a result of the pandemic, company boards are also now asking for stress tests of supply chains – just like we saw for banks after the 2008 financial crisis. When you have products coming from very far away, the reactivity you have is very low.

CARLOS CORDON IMD Professor of Strategy and Supply Chain Management

How did the global supply chain become so imbalanced?

For many years, companies were very incremental in their approach. Imagine you have a house and you have one child and then another child, so you need another room and so on. After 15 to 20 years, you end up with a house that doesn’t make any sense – the