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Return to Go: Farewell to Globalization?

Connected world: Depiction of the globalized economy

© Sergey Nivens – Adobe Stock

When the electronic components from East Asia are missing, when other supplier parts do not arrive because of container ships that are stuck in ports closed due to the pandemic and the freight rates from international destinations increase tenfold – then some purchasing managers or supply chain managers will wish back to the supposedly good old days before globalization, which he or she only knows from hearsay. There, you simply sent a truck to the supplier when parts were missing and were not dependent on what was happening in Chinese ports or ship accidents in the Suez Canal.

By: Gerald Scheffels for GIB

Are insourcing and nearshoring the solution?

The desire to reintegrate previously outsourced processes is understandable. Probably the supply chain never has been so unstable and critical for so many companies as it is now. But are strategies like insourcing or nearshoring realistic? From an economic perspective, can they be a real alternative?

The answer is complex. Short chains are more stable, that's true. But to be fair, it should be said first:   If you want to sell worldwide, you should not limit your purchasing to the immediate environment. What if the example sets a precedent with the customers in China and the USA? Then entire markets collapse.

Many supply chains are and remain global

Furthermore, wage differentials, for example, cannot be argued away. And it might be hard to buy microchips or special sensors in the neighborhood. Some supply chains are simply global, and if you add raw materials, this even applies to most supply chains.

Economies of scale and core competencies also play a role. If a service provider produces, paints or finishes components for fifty or two hundred customers, he can most likely do it better as well as cheaper than each customer for itself.

Taking advantage of proximity

This means: You will have to live with the complexity. There is no complete return to the pre-globalized economy. But every company is called upon to deal wisely with the fact of globalized supply chains and to look at where risks can be reduced.

One measure could and should be: check where to buy locally instead of globally. In doing so, you should not only look at the price – which should then often be higher. It is also worthwhile to put the manner of cooperation to the test. Working with a local supplier is different than working with suppliers on the other side of the globe. Maybe the local supplier has an idea to optimize the construction? Or he supplies a complete module instead of various components? Spatial proximity also creates other opportunities for cooperation.

Plan – Monitor – Control

Consequently, supply chain optimization – often driven by necessity – should not only be about the distance to the supplier, but also about the type of relationship that is maintained.

And regardless of where the supplier is located – whether in Stuttgart or Shenzhen – transparency should be brought into the supply chain. Then, in the best case, you can plan according to demand, monitor in a timely manner and, as far as supplier management is concerned, sit at the steering wheel instead of in the passenger seat.

Goal: Stabilize the supply chain

For this task, there are software tools that are natively integrated with SAP. There are consultants who can help you optimize your supply chain, bringing in their experience from numerous projects. And there are events where you can get ideas on how to put good resolutions for supply chain stabilization into operational and business practice – for example the GIB SUCCESS DAYS, which will take place under the motto "stabilize. balance. reimagine. More stability for your supply chain".

Here it is possible to exchange with experts and to discuss together how to be proactive and increase reliability of supply – no matter where the parts are sourced from.

Taking the task seriously

The topic is urgent, the GIB SUCCESS DAYS 2022 hits exactly the nerve of the time. The CEO of the world's largest asset manager, Larry Fink from Blackrock, is already preparing his shareholders for an "end to globalization as we know it" (FAZ.NET) in his annual newsletter.

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