The coronavirus pandemic snarled the world’s sprawling supply chains for months, shutting factories, disrupting shipping and making it difficult for companies to get products from factories to consumers. Now, many companies are considering changing the model to avoid future product shortages and transportation delays, even if it might increase costs. Some are looking at moving production closer to home. Others are considering spreading small factories around the world instead of putting all their manufacturing in one place.
The idea is called “regionalization.” It involves sourcing components or setting up factories in multiple parts of the world at once, and then using each region to supply products to customers in the closest markets. If a factory is closed due to a disruption in one place, it will only impact sales in a few nearby markets, without affecting customers elsewhere. But “a world of more diversified supply chains almost certainly will be less efficient,” states one economist in The Wall Street Journal (Dec. 28, 2020).
The U.S.-China trade war left many companies wary of concentrating too much production in one place—often Asia—in a race to keep costs low. The disruption from the coronavirus pandemic reinforced the feeling that the caution was warranted. Recently, 93% of executives told McKinsey & Co. they would explore a potential overhaul of their supply chains.
Setting up new supply chains is expensive, and the incentive to keep production in low-cost countries could be overwhelming. It has proven particularly tough to diversify away from China, whose factories reopened quickly in the spring, while other countries struggle to control the virus.
Classroom discussion questions:
1.What are the four global OM strategy options discussed in Ch. 2 of your Heizer/Render/Munson text?
2, What are the advantages and disadvantages of “regionalization?”