Will shortening supply chains benefit American businesses?

Posted Aug 10th 2009 5:30PM by Connie Madon
Filed under: Management, Competitive Strategy, Financial Crisis

For the past twenty years we've seen a globalization of production and distribution. The present financial crisis is causing companies to rethink one component, that of distribution of component parts.

Supply chain experts Ernest and Young estimate that 70% of a company's carbon footprint comes from transport and other costs in the supply chain.

So then, with such high costs, companies are setting up supply chains closer to home. US companies are restructuring their operations and using Mexico and a supply center for component parts. European operations are using Eastern Europe as the hub of their supply operations. These moves are intended to shorten supply chains to reduce costs. The long supply chains all the way back to China are being scrapped in favor of these shorter, regional chains.

David Bartlett of RSM Group pointed out that to such industries as steel, automaking, aerospace and furniture distance does matter.

In Europe, many companies are bringing manufacturing back home. This is a dramatic shift from the intense shift that took place to establish manufacturing centers in far flung places in the world.

The financial crisis has brought pressure toward nationalization of production and the establishment of regional supply chains.

Then we have a strong carbon footprint to deal with. If the 70% figure is accurate, shortening supply chains would reduce carbon emissions a good deal.

Let's hope that American manufacturers will get the message and bring their production and distribution back home.

Do you believe that shortening the supply chain will benefit American business?

Tags: RSM Group, transportation