Building a Right-Shoring Strategy: A Holistic Approach to High-Tech Supply Chain

For high-tech manufacturers, the name of the game is flexibility. This is a fast-moving industry where the winners are fast and nimble.

Winning organizations are innovative, and they get their products to market quickly. The latter part of that equation requires the right supply chain strategy.

New data from UPS reveal that high-tech companies increasingly take a comprehensive approach to their supply chains, often considering many factors to decide where they will manufacture and assemble their products. Many supply chain managers see “right-shoring” as part of the answer, according to the Fifth Annual UPS Change in the (Supply) Chain Survey (CITC).

For a long time, high-tech firms had a rather simple manufacturing formula: Assemble or assemble products in countries where labor costs are lowest. They called the strategy “off-shoring.” By now, we all know it well. In the United States, the trend dates back to the early 1980s economic recession when manufacturers sought lower labor costs in international locations. Off-shoring also enabled companies to take advantage of currency rate differentials and to penetrate new markets.

More recently, companies saw greater value in shifting production and assembly sites closer to end consumers. This was the genesis of the “near-shoring” trend, which takes advantage of shorter time to get products to market. It also helps cut shipping costs.

These days, however, more companies are exploring right-shoring, which balances other metrics to determine the proximity of sourced materials to production, warehousing and distribution. These metrics may be cost or resources (skills and infrastructure) for the best overall margin performance and customer satisfaction.

Forty five percent of CITC survey respondents said they use right-shoring strategies. Forty seven percent said they off-shore. And 35% said they near-shore. Respondents had the option to select multiple strategies.

These numbers underscore an undeniable reality that a flexible supply chain is a competitive advantage, and high-tech businesses, no matter how large or small, cannot afford to cling to the ways of the past.

Our survey shows that right-shoring is no longer just a trendy topic in logistics and academic circles. This strategy is mainstream.

Getting past barriers

The most recent CITC survey gives us some valuable insight into the growth prospects that drive supply chain decisions at leading high-tech companies.

That poll of 516 senior supply chain executives in North America, Europe, Asia Pacific and Latin America shows widespread confidence among industry leaders that growth will continue. Seventy four percent expected export growth to continue at the same rate or faster over the next two years.

A big part of this robust outlook centers on emerging markets. According to the CITC survey, Brazil, Russia and India are the top-three markets that high-tech companies plan to enter in 2015. Many of the respondents (71%) already are established in China.

This trend reflects the tremendous opportunities for high-tech companies in emerging markets. But there are challenges in their quest to enter those markets. The CITC survey shows that high-tech companies often have difficulty navigating the regulatory environment in new markets. This is a top barrier to expansion.

Logistics companies like UPS can help businesses overcome such challenges, using established in-country infrastructure to keep high-tech companies from having to bust the bank to compete in relatively untapped foreign markets. The right logistics partner also can help businesses identify trends in the changing marketplace, solve problems and create long-term value.

A new normal for high-tech firms

As high-tech companies constantly tweak their supply chain strategies, they're also finding new techniques for improving the ways they design new products using 3D printing, our CITC survey shows.

Progressive thinking like this has become the norm in the high-tech industry. It has to be that way because this industry lives on the cutting edge of innovation.

Any successful player in the consumer high-tech business knows you have to respond quickly to change. You have to adapt. There is no one-size-fits-all strategy for success.

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