73% of companies have adjusted their supply chains in the past two years, adding or removing production locations from their supply chain networks, according to a recent survey by Gartner. These changes have been driven by chief supply chain officers’ (CSCOs) emphasis on building resilience, agility, and flexibility into their supply chains, rather than prioritizing the lowest-cost strategies.
To understand how CSCOs are currently approaching supply chain design and strategy, Gartner surveyed 437 respondents from April to May 2024, which included senior managers and above from companies with annual revenues of at least $250 million across North America, Latin America, Europe, and Asia/Pacific. The data showed that “risk management considerations, such as improving resilience, in addition to enhancing flexibility, and agility, have displaced cost-efficiency as the top drivers of network changes.”
The top factors driving changes to the supply chain network in the last two years were:
- Increase resilience / redundancy as part of risk management strategy: 46%
- Improving agility or flexibility: 43%
- Reducing operational expenses and being cost-efficient: 41%
- Meeting sustainability objectives or targets: 38%
- Simplify / streamline supply chain network: 36%
The most frequently cited changes to supply chain networks were:
- Half of respondents cited adding new supply locations with existing supply partners,
- 48% cited pursuing new supply locations with new supply partners.
The addition of supply locations is a strategy companies often deploy to serve multiple purposes, including diversification, achieving cost-efficiencies, mitigating geopolitical pressures, and improving efficiency.
Among organizations that have made supply chain network changes in the past two years, 90% reported that they have met or exceeded the expected benefits of the change. These benefits include improved service, cost reduction, enhanced agility, and reduced carbon emissions. This success rate indicates more changes are likely to come, as supply chain leaders pursue a ‘reglobalization’ strategy that incorporates a mix of nearshoring and low-cost diversification.
However, despite the early success of these network shifts, 96% of respondents cited challenges with operating in new locations. While operational and logistics costs were most often cited in the aggregate, there were important regional differences emphasized by supply chain leaders, including:
- For new capacity added in India, inadequate logistics infrastructure was more of a challenge than logistics costs.
- In North America, a shortage of factory workers is a more common challenge compared to all other regions.
- Complexity in complying with local regulations in South Asia, Africa, and Central and South America was cited at higher rates than other regions.
These regional differences underline the importance of making decisions on new locations based on a variety of factors and not just apparent cost-efficiency. A lack of factory workers or complexities in complying with local regulations often add further costs if not thoroughly considered and addressed before decisions are taken.
Gartner clients can read more in: Reglobalization Is Driving Supply Chain Performance. Nonclients can learn more in: Supply Chain Risk: Key Strategies for Success.
