Closing the Gap

Supply chains are rethinking their sourcing distances, with some opting to try a more localized approach to manufacturing and distribution.

By Mike Ogle

Consumer demand for speedy deliveries, the global scope of e-commerce and trade, increased product customization and bottom lines are all causing supply chains to rethink their sourcing distances, with some opting to try a more localized approach to manufacturing and distribution. Almost every supply chain is challenged by these raised expectations. Even industrial sourcing is affected by personal consumer expectations as people start to ask why industrial materials and parts can’t be shopped for and delivered like consumer goods.

Localized manufacturing and distribution is about building, sourcing and serving closer to customers rather than from larger, centralized facilities shipping long distances around the world. Technology has stepped in to help enable and coordinate long-distance flows, but is also enabling supply chains to go more local as well as global.

Jim Tompkins, chairman and CEO of MHI member Tompkins International, said, “Localization is a requirement because it is impossible to centrally design and control systems that have so much volatility, uncertainty, complexity and ambiguity.” He emphasized that master-planned optimization is an obsolete concept that has been replaced by planning for adaptability because optionality beats optimality.

Big and global isn’t always the answer

There are many reasons why companies have “gone big and global,” concentrating their production at large factories that ship around the country or around the world. But, there are some industries that require customization closer to the customers, even if they are producing at a large centralized facility. As pointed out by Brian Guistwhite, director at MHI member St. Onge Company, “Many recreational vehicles (RVs, boats, motorcycles, quads) are manufactured on a standard base that can be delivered to many sites where final assembly is completed locally and they have considerable sets of options that can be added, removed or exchanged to provide the local consumer with the options that they want.” The magic is in finding a large enough cluster of customers and understanding their preferences to determine whether building a local production facility meets a breakeven point to justify the investment in more local capacity.

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