Industrial N Illinois

JLL: Culture, cost curves, tech all catalysts for change in global supply chain

  

JLL examined several big changes in global culture, cost fluctuations and technology that are influencing global supply chain.

Globalization has created opportunities and challenges for manufacturers. Companies can make and ship products all over the world but they must manage very complex supply chain networks of plants and distribution centers. Now more than ever it’s important to work in the most efficient and effective ways.

U.S. manufacturers are not always able to compete from a pure labor-wage-rate standpoint, especially for lower-tech, labor-intensive goods, often their only option is to be more innovative. So new product development, lean practices, productivity improvements and the latest technology have come into play.

The intensification of globalization gave rise to manufacturing in other countries such as China, India, Mexico, Brazil and Vietnam, but now that’s being reexamined, JLL said the report. Manufacturers that did a lot of outsourcing and offshoring are now reconsidering their operations.

The first major change driving manufacturers to reevaluate their supply chain is a clear trend towards protectionism. The election of President Trump and the Brexit vote are indicators that voters want their government to look after its own interests first, the report said.

Large companies are aware of this sentiment, Wal-Mart committed to source more products from the United States than from offshore. That means an additional $250 billion in products either made, assembled or grown in the United States. Other trends include farm-to-table cooking and increased support for locally-owned, small businesses. For supply chain, this means companies focused on importing or outsourcing products might be negatively affected. The current environment creates incentive to establish manufacturing within the country.

The largest cost drivers influencing manufacturing or sourcing decisions are freight costs and labor rates. Chinese labor used to be so inexpensive it made sense to outsource manufacturing. Now the price gap has tightened to about a 1 percent difference, and that coupled with a high cost of transportation for a greater distance just isn’t worth it for some companies. As this trend continues, it will become more important to produce products as close to the final destination as possible, JLL reported.

Of course, technology has played a large role in disrupting a number of industries. Everything from driverless vehicles, 3D printing and wireless capabilities is changing supply chain. Deloitte ranked robotics and automation as the technologies that will most likely revolutionize supply chain. Innovations in tech will drive changes in supply chain with a direct focus on labor productivity improvements and giving companies the ability to do more with less.

These changes in the marketplace will force companies to take a look at their operational strategy. The right facilities in the right locations is critical to making supply chain work.