Urgent! We need Supply Chain Resilience for helmets and goggles
Before COVID, we focused on offshoring, lowering labor costs, and accelerating time-to-market.
These days we are demanding supply chain resilience - and a myriad of intangibles like sustainability.
Not even a worst-case scenario could have foreseen the pandemic fallout: unsold goods, production halts, supply chain disruption, travel difficulties, and shipping nightmares.
Many brands did not pull through.
Now we find ourselves needing to shift toward nearshoring.
But, let’s remember that finding suppliers, factories, and shipping options was challenging in order to offshore in the past too.
Uh…Hello? It's almost 2025, you know
According to a World Federation of Sporting Goods Industry and McKinsey event last month, 75% of sporting goods manufacturers will increase nearshoring by 2025.
However, only 8% of us are already pursuing nearshoring!
We have had a good three years during - and since - the pandemic to contemplate solutions to our supply chain. Nearshoring tops the list. What is everyone waiting for?
The obstacles to nearshoring are daunting
The sourcing of raw materials for our industry is a topic unto itself. China has a monopoly. Other product sectors can help fill the sourcing if we can repurpose their materials for use in sporting accessories.
Let's face it, many of our sector's components are not eco-friendly. Few economic trade areas than the EU are more stringent on chemicals that we need for our products. Hopefully one day these standards will be international to level the playing field. In the interim, the race is on to develop alternative materials.
Moving from globalization to a more local supply chain can result in a 5% drop in global GDP. This OECD simulation prediction is steep, so we must consider opportunity cost.
Looking at every angle, the argument for nearshoring (or at least "mirroring") is still attractive. We continue to endure the pain of our inefficient supply chain status quo, but we can start to implement changes.
What is "Mirroring" to build supply chain resilience?
Redundant supply sources in at least two places - one near and one farther away - are a good backup plan. When demand is high, both plants can increase output. If one fails, the other picks up the slack. It's expensive, but it's a matter of doing the numbers and modeling scenarios with a qualified consultant. Inventory needs monitoring. Different plants might need to increase or decrease duplicated functions.
The goal is to deliver a product no matter what. Few business decisions will cost your company more money than losing repeat business.
How do we build supply chain resilience?
One way is to increase flexibility through monitoring and transparency. Blockchain is on the horizon for this.
Also, Just-In-Case Inventory is becoming more popular. Unfortunately, our accessory sector often has a glut of inventory, which is causing other issues lately. Nevertheless, we can't dismiss JIC as a potential resilience-building solution.
In fact, JIC has been the preferred method to create resilience. Finding warehouses and holding more inventory is a quick fix. According to Savills, US warehouse vacancy rates in real estate are at a record low of 4.4%, with companies scooping up leases at record rates.
And then there's nearshoring. Bringing our manufacturing closer to consumers (and nearby markets) for supply chain resilience is common sense.
Nearshoring isn't a lofty goal - it's a survival tactic
Leveraging our EU advantages helps smooth the transition toward more nearshoring.
Stability
Since 2001 when China joined the WTO, its wages have risen 250%. As a result, the labor cost benefits of offshoring are beginning to dwindle.
The formation of the European Union erases unfair trade among our countries. China receives thousands of complaints about unfair trade practices yearly.
Meanwhile, trade and political tensions rise between China, the US, and Europe.
We can now see, more than ever, the benefits of erasing trade barriers and tariffs- precisely why the single market exists.
Ease
The EU is complex. But, there is no doubt that the quality of our infrastructure and cultural similarities facilitate supply chain coordination. If we can manage communication, travel, cultural and currency issues, etc., with China, we can undoubtedly tackle obstacles among us in the EU.
ESG considerations in Supply Chain
Environmental, Social, and Governance (ESG) considerations are increasingly essential to supply chain management in the EU.
Besides, EU consumers are increasingly socially conscious, value environmentally aware companies, and understand that this means paying more.
- Environmental considerations
By choosing suppliers that prioritize sustainability, companies increase their sustainability reputation. Improving the environmental impact includes: reducing the carbon footprint and water consumption and controlling waste and energy use. In addition, we can find some alternatives for raw materials using EU R&D.
- Social impact
More equitable supply chains involve suppliers that meet EU labor standards, human rights practices, and community engagement.
- Governance
Anti-corruption, data privacy, and supply chain transparency contribute to ethical corporate management. In addition, working with the right countries diminishes your brand's reputation risk and legal liability. Reducing risks also lowers costs.
Regional consumption potential
The sports equipment market is mainly in North America and Europe anyway. Thankfully, our market size opportunity in the EU is already established.
Technological Advances
The truth is that China is superior in technology in our sector. But we aren't talking about rocket science in the case of our industry. The EU is more than capable of advancing our technology with more financial support.
Who are the hot nearshoring countries?
The EU nations make up the bulk of the Top 20 locations for nearshoring:
Austria (#3), Croatia, Czech Republic (#1), Denmark, Finland, Germany, Hungary, Ireland, Netherlands, Portugal (#2), Poland, Romania, Spain, and Sweden.
The EU takes the nearshoring index by storm. The UK was #5. Only Taiwan, Canada, Japan, Singapore, and South Korea make the Top 20 nearshoring list per Savills' research.
To Nearshore, or not to nearshore - that's the question
Any move to improve your organization's flexibility will ensure long-term financial health.
Clovis Henzen Consulting recommends that your company conduct an investigative report to evaluate existing offshore suppliers and substitution options closer to home.
Examine your vulnerabilities to improve your supply resources. Develop a response plan for different macroeconomic scenarios.
It is time to strengthen your brand's outlook with a custom nearshoring analysis.
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