Proactive risk management and data-driven reshoring strategies can empower risk managers in logistics companies to navigate supply chain complexities with confidence.
Geopolitical tensions and market disruptions are driving a paradigm shift in global supply chain management. The phenomenon of reshoring, where companies relocate production and supply chain operations closer to home, is gaining traction as organizations seek to mitigate risks and capitalize on emerging opportunities.
One example is the surge in production relocation from China to markets like Mexico and Canada. Automotive manufacturers, particularly in emerging sectors such as electric vehicles and battery technology, are pioneering this shift. In a move that was previously unheard of, 364,000 jobs were reshored to the U.S. in 2022, a 53 percent increase from 2021.
Chris Bhatt, CCO of Aon’s Global Transportation and Logistics, said:With rising geopolitical and market risks, I'm seeing more firms realign their resourcing and production. It's all about enhancing supply chain resilience.
Driving Factors Behind the Shift:
With elections scheduled in nearly half the world in 2024 and an increasing trend toward protectionism, companies’ existing supply chains are facing mounting pressure. The ongoing conflicts in the Red Sea and the Middle East add further unpredictability to global supply chains.
Growing Challenges in Asia:
While manufacturing in China has historically had its share of economic advantages, the narrowing cost gap driven by increasing production costs and geopolitical risks is prompting companies to reassess their options. Moreover, Asia’s susceptibility to weather and climate risks adds another layer of complexity to supply chain decision-making.
Supplier Insolvencies:
Compounding these challenges are the increasing insolvencies of suppliers, particularly smaller ones, and the less robust legal frameworks in certain regions. This may expose companies to risks such as intellectual property infringement.
ESG Pressures:
In response to growing societal and regulatory pressures, companies are also under increasing scrutiny to demonstrate their environmental, social and governance (ESG) commitments, leading to the emergence of green supply chain initiatives.
Key Takeaways
- Companies are increasingly turning to reshoring strategies in response to factors such as narrowing cost differentials and increasing weather risks in key global locations.
- Effective risk management, including the use of data analytics and strategic planning, is crucial in navigating the complexities of reshoring.
- Working with a broker can help manage supply chain risks, leverage data-driven insights and access proprietary analytics platforms.
This article was originally published by Aon.