Many businesses are looking to restructure their supply chains to reduce risk and improve resilience. One approach gaining traction is reshoring production to the US and Europe. This is driven by several factors including: rising labour costs in Asia; changing trade policies; and the increasing need for greater supply chain transparency and control.
Reshoring also reduces transportation costs and lead times, letting companies respond more quickly to changing market conditions. Reshoring production can also help companies better protect their intellectual property and ensure compliance with regulatory requirements.
While there are challenges to reshoring, including higher upfront costs and the need for specialised skills and equipment, many businesses consider it a necessary step in securing their long-term competitiveness.
Intellectual property security is a major concern for companies operating in Asia. In recent years, there have been many cases of intellectual property infringement, with counterfeit products and copies flooding the market. As the insider noted: “It’s always a risk, but it’s one you can manage.”
To mitigate risk, companies can partner with local firms with good reputations and understanding of the local market. Such partnerships can help companies to better protect their intellectual property by providing access to local knowledge, expertise and resources. Additionally, setting up their own production facilities can provide companies with greater supply chain control and reduce the risk of intellectual property infringement.
Despite the risks, companies cannot ignore the opportunities the Asian manufacturing hub offers. Instead, they must balance risks against benefits.
Quality issues in different regions
Regarding quality, tier one contract electronics manufacturers are particularly adept at standardising processes and delivering successful outcomes in low-cost regions. However, smaller players may find it challenging to achieve the same success. Companies should consider the quality capabilities of their chosen manufacturing location.
Quality can be controlled through regular communication and on-site factory visits. This helps identify and address potential issues quickly, which can prevent delays and production setbacks. Also, quality control can be implemented throughout the supply chain, from component selection to final product testing.
Freight costs and environmental impact
In addition to rising sea freight costs, other challenges when shipping products include the long transit time, which can leave finished goods in transit for several weeks. This can be particularly challenging for companies relying on JIT delivery to meet customer demand. Furthermore, the pandemic has caused port congestion and shipping delays.
Air freight is faster but more expensive, while rail freight offers a balance between speed and cost. However, rail freight is limited by availability of infrastructure and can be subject to border controls and customs clearance.
Companies can also consider rethinking their supply chain strategy by reshoring production or sourcing components from local suppliers. This could also help reduce the environmental impact of shipping and improve supply chain resilience.
Supply chain flexibility and hedging variations
The insider emphasised the importance of supply chain flexibility. Staying in contact with factories and spending time onsite ensures quality and timely delivery. Dealing with the hedging of variations with the US Dollar and the Euro is simpler and more stable than dealing with other currencies, making it an attractive option.