Move away from single production sites in low-cost countries

Will Green is news editor of Supply Management
23 June 2020

Manufacturers should move away from single production facilities in low-cost locations in order to reduce risk in the wake of the coronavirus pandemic.

A study by the University of Birmingham said production should be switched to numerous smaller facilities around the world, including reshoring, to increase resilience.

Researchers said the concept of value must be broadened beyond profit to include elements such as speed, customisation, reliability and “place-based affiliations” to redraw global production networks (GPNs).

The report, based on a study of 91 US manufacturing companies, said coronavirus had shown the most effective GPNs balanced cost control and risk – “balancing production facilities in core markets against over-reliance on facilities located in lower-cost locations”.

Report co-author Professor John Bryson said: “There is a real tension between optimisation of GPN and risks which ripple out across the globe. Covid-19 is the first time that these ripples have impacted on every country and the majority of people living on this planet.

“It is unfortunate that companies, governments and geographers did not consider the outbreak of SARS in late 2002 as a testbed to develop new approaches to the management of risk. GPNs and offshoring come with many risks that have been ignored.

“There is a critical social science debate within geography that must move from celebrating the dominance of GPNs as an organisational form to an ongoing critical reframing that accepts that a fundamental rethink is required by global manufacturing concerns.”

In response to the US-China trade war, the study found most firms had swapped from suppliers with production facilities in China to suppliers in other low-cost countries including Vietnam, India and Mexico. But around a fifth were either opening new manufacturing plants in the US or expanding existing US facilities.

The report said the second group were using a wider definition of value to inform their decision-making, taking into account “non-priced-based forms of value”.

Bryson said: “Globalisation is not a novel concept, but Covid-19 has highlighted the risks associated with increasing interconnectedness of people and places through economic, political, cultural, and environmental changes.

“Existing thinking on GPN design minimises costs and maximises economic ‘value’ rather than balancing profit against risk reduction – a high-risk approach that must change. We must reframe the debate on globalisation around the benefits and risks associated with deepening globalisation.”

Separately, the IHS Markit/CIPS Flash UK Manufacturing Purchasing Managers’ Index showed factory activity in the UK increased in June, with the index rising to 50.1, up on 40.7 in May and against the neutral 50 reading.

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