Posts by Ben Unruh

The COVID-19 pandemic has underscored the fragility of global supply chains, revealing the pitfalls of overreliance on a single source. Production delays and shortages highlighted the need for a resilient supply chain, which is crucial for the survival and continuity of businesses in turbulent times.

In response, companies are increasingly turning to diversification as a strategic risk management tool. Diversifying manufacturing beyond China to include emerging hubs like Vietnam, India, and Thailand has become essential. This strategy not only mitigates tariffs and cost impacts but also ensures market access, reduces lead times, and builds a robust supply ecosystem capable of withstanding future disruptions.

Economic and Political Risks in Global Manufacturing

Navigating the economic and political landscapes is vital for managing global manufacturing risks. Understanding tariffs and the political climate’s impact on production and investment is fundamental.

Tariffs and Trade Tensions Between the US and China

Ongoing tariffs and trade tensions have led businesses to reassess their strategies. Increased costs due to tariffs on Chinese goods drive companies to explore alternative manufacturing locations. For instance, the US imposed tariffs on approximately $550 billion worth of Chinese goods, prompting a significant shift in supply chain strategies.

Country-Specific Risks

Economic stability, fluctuating currencies, bureaucracy, and the ease of doing business vary by country. These factors impact the efficiency and cost-effectiveness of manufacturing in Vietnam, India, and Thailand. Vietnam’s GDP grew by 2.9% in 2020 despite the pandemic, showcasing its economic resilience.

Political Climate

Political stability and government policies significantly influence the attractiveness of a country for foreign direct investment (FDI). A supportive political environment offers incentives, infrastructure, and predictability, making it an appealing choice for manufacturers. Thailand’s political stability and pro-business policies have attracted substantial FDI, with inflows reaching $14.6 billion in 2021.

Tariffs and Trade Barriers: Navigating Challenges

Tariffs and trade barriers shape the global manufacturing landscape, influencing decisions on production locations. The US-China trade war has led to increased tariffs, prompting companies to rethink their supply chain models.

Strategies for Mitigating Tariff Risks:

Supply Chain Diversification: Spread production across multiple countries to minimize dependency and tariff exposure.

Nearshoring: Move manufacturing closer to end markets to reduce transit times, costs, and tariff impacts.

Vertical Integration: Control more stages of the supply chain to decrease reliance on imported materials.

Regional Trade Agreements: Agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) reduce tariffs and ease trade, offering new opportunities for manufacturers. For example, RCEP covers 30% of the global GDP, enhancing trade prospects in the region.

Diversifying Manufacturing from China

Companies are increasingly moving manufacturing from China to Vietnam, India, and Thailand, which offer lower labor costs, abundant resources, and growing economies.

Vietnam

Known for its skilled workforce and favorable trade agreements, Vietnam is a popular choice for relocating production. The country’s electronics exports were valued at $96 billion in 2020, reflecting its manufacturing prowess.

India

With a large consumer market and investment-friendly policies, India presents numerous opportunities for diversification. India’s pharmaceutical exports grew by 18% in 2020, showcasing its competitive advantage in this sector.

Thailand

Thailand offers a stable political environment, good infrastructure, and a skilled labor force, making it ideal for expanding beyond China. The country’s automotive industry produced 2 million vehicles in 2019, highlighting its manufacturing capacity.

Advantages of Manufacturing in Vietnam, India, and Thailand

Labor Costs and Skills

Vietnam, India, and Thailand offer competitive labor costs and skilled workforces. Vietnam excels in textiles and garments, India in pharmaceuticals and technology, and Thailand in automotive and electronics manufacturing. For instance, Vietnam’s average monthly wage in manufacturing is around $250, significantly lower than China’s $650.

Infrastructure and Logistics

These countries are investing in infrastructure to meet manufacturing demands. Vietnam has improved port and transportation facilities, India’s logistics sector is growing, and Thailand’s Eastern Economic Corridor is enhancing its infrastructure.

Industry-Specific Opportunities

Each country excels in specific industries, drawing substantial foreign investment. Vietnam is a leader in electronics, India in automotive, and Thailand in both automotive and electronics. 

For Align MFG’s metal parts and engineering solutions, Vietnam offers competitive labor costs, India boasts a scalable workforce, and Thailand provides a balance of cost-effective and skilled labor.

Evaluating Benefits

Diversifying manufacturing locations provides numerous advantages, including better market access, enhanced supply chain resilience, and attractive investment incentives. These factors contribute to increased business stability and profitability for Align MFG’s metal parts and engineering solution.

Infrastructure and Logistics in Vietnam, India, and Thailand

Assessing infrastructure and logistics is key to successful manufacturing diversification.

Transportation Networks

Vietnam has major ports and is investing in road and rail upgrades. India has extensive railways but rural connectivity issues, while Thailand has superior ports and road networks.

Logistics Efficiency

Cities like Ho Chi Minh City, Mumbai, and Bangkok are logistical powerhouses. Vietnam and Thailand score well in logistics proficiency, while India is improving through initiatives like ‘Sagarmala’.

Government Investment

Governments in these countries are heavily investing in infrastructure to support manufacturing. Vietnam is focusing on highways and airports, India on urban and industrial ecosystems, and Thailand on sustainable infrastructure.

Embracing a Multi-Faceted Future in Manufacturing

The need to diversify manufacturing bases is critical for building resilience. 

At Align MFG, we specialize in helping businesses diversify their manufacturing operations from China to strategic locations like India, Vietnam, and Thailand. We are also diversifying ourselves, establishing production facilities in these countries to manufacture high-quality metal parts. Our unique selling points include our extensive industry knowledge, strong local partnerships, and a steadfast commitment to quality and innovation. By leveraging local resources and optimizing supply chains, we ensure cost-effective and efficient production. 

Contact Align MFG to discover how we can support your business in optimizing supply chain resilience and operational efficiency through our expert engineering of metal parts. Our comprehensive services cover various casting processes, parts, and industries, ensuring tailored solutions to meet your specific needs.

As global markets expand, supply chains must adapt to new challenges driven by competitive pressures, consumer demands for sustainability, and the unpredictable nature of international trade. Globalization has created intricate supply networks, making companies vulnerable to risks like geopolitical tensions and economic fluctuations. Diversification mitigates these risks by spreading dependencies across multiple suppliers and regions, ensuring consistent operations. Ethical and sustainable sourcing further strengthens supply chains, meeting consumer expectations for transparency and social responsibility. Though diversifying may introduce short-term costs, the long-term benefits include significant savings, better negotiating leverage, and enhanced resilience against disruptions. By balancing efficiency with risk mitigation, companies can achieve a robust and adaptable supply structure that ensures long-term success.

Advantages of Supply Chain Diversification

1. Mitigating Risk: Relying on a single supplier, particularly one located in a different country, exposes companies to a range of risks such as geopolitical tensions, trade disputes, natural disasters, and pandemics. Diversifying the supply chain reduces these risks by spreading them across multiple suppliers in different locations.
2. Cost Savings: Competition between suppliers can help drive down costs and improve quality. By having multiple suppliers, companies can negotiate better pricing and terms.
3. Improving Quality: Diversifying the supply chain can help companies to access new technologies and innovations, leading to improved quality and increased competitiveness.
4. Increased Flexibility: Having multiple suppliers can provide companies with greater flexibility and responsiveness to changes in demand. This is particularly important in industries where demand can be volatile and subject to sudden changes.

Case Studies: Industries That Learned the Hard Way

• Automotive manufacturers faced a crisis when a single-source supplier in Japan was hit by an earthquake, causing a ripple effect that stalled production lines worldwide.
• The pharmaceutical industry, too, has been a victim of overreliance on specific markets, with drug shortages emerging as a consequence of quality control issues at foreign plants.
• Technology companies have struggled with intellectual property theft and counterfeit components due to insufficient vetting of new suppliers in diversified supply chains.

These real-world examples underscore the necessity of comprehensive risk assessment when exploring new sourcing options.

Strategies for Implementation

Building Relationships with Alternative Suppliers

One of the foundational steps in implementing supply chain geographic diversification is to build relationships honestly with potential alternative suppliers. This involves negotiating contracts, establishing communication channels, and setting up systems for tracking orders and deliveries. It is crucial to explain your business needs and approach to these suppliers, emphasizing the importance of regular or emergency support. This helps in maintaining the relationship and staying on their priority lists.

Managing Multiple Suppliers

Effectively managing a diversified supplier base requires robust systems. Implementing tools that are EDI (Electronic Data Interchange) capable can aid in tracking orders, monitoring performance, and ensuring reliability. An EDI focus facilitates integration with supplier and partner portals, scorecards, ordering tools, and other management systems.

Real-Time Data Utilization

Utilizing real-time data on the total supply chain enables organizations to accurately identify their intersection of demand and supply. This data-centric approach helps in effectively and sustainably securing products and better ascertaining potential risks with suppliers. A trusted supply-chain analytics platform provides the reliable and precise data necessary to identify areas of product vulnerability and introduce safeguards, whether dealing with small disruptions or large-scale crises such as pandemics.

Government Support

Governments can provide support through trade promotion activities, export financing, and investment incentives. By leveraging these resources, companies can reduce the financial burden of diversification, gain access to new markets, and enhance their competitive edge.

Engaging Diverse Supply Chain Partners

Engaging diverse supply chain partners has gained significant importance in recent years. Many consumers now prefer to support small community businesses, making diverse suppliers a valuable asset in the supply chain. Companies should pinpoint and engage these partners to fill important gaps and meet consumer expectations.

Leadership and Crisis Management

Ensuring a flexible and resilient operation post-pandemic requires scalable crisis management processes, sufficient leadership capability, and thorough documentation of experiences and learnings. Companies should set priorities with an investment budget, a risk or investment return profile, and a timeline to enact changes. Progress reporting should be a standard part of quarterly executive leadership discussions, with accountability resting with the COO or SVP of the supply chain. Additionally, executive leadership buy-in and board awareness for the diversification plan are crucial. Educating line staff to use tools for identifying and responding to issues and opportunities is essential for maintaining operational continuity.

Evaluating Suppliers

During the evaluation process, supply managers should consider broad criteria such as location, employee capabilities, and cultural and language differences. The amount of time and effort involved in searching for and evaluating suppliers should correspond to the cost and complexity of the items required. Obtaining credible market intelligence is essential for identifying, qualifying, and approving appropriate sources of supply. This process includes competitive bidding for simpler procurement items and more detailed evaluation for complex or high-cost items.

Navigating Legal and Compliance Issues

Expanding the supplier base internationally introduces a complex array of legal and compliance challenges. Compliance with international trade laws, understanding tariffs, and navigating regulatory landscapes are fundamental aspects that companies cannot afford to overlook. Adhering to these legal requirements ensures uninterrupted operations and upholds reputational integrity. Proper due diligence, regulatory compliance frameworks, and working with legal counsel knowledgeable in international sourcing are indispensable steps in this phase of implementation.

Incorporating Local Content

Companies can incorporate local content into their products by using locally sourced raw materials to tap into local supply chains. This approach not only supports local economies but also reduces transportation costs and environmental impact. By integrating local content, companies can ensure a more resilient supply chain that is less susceptible to international disruptions, while also appealing to consumers who value locally produced goods.

Strategy	Description
Building Relationships with Alternative Suppliers	Establish honest negotiations, communication channels, and order tracking systems to ensure stable relationships and priority support from suppliers.
Managing Multiple Suppliers	Utilize EDI-capable tools for tracking orders, monitoring performance, and ensuring supplier reliability through an integrated system.
Real-Time Data Utilization	Leverage real-time data and supply-chain analytics to identify demand-supply intersections, secure products, and ascertain supplier risks.
Government Support	Governments can provide support through trade promotion activities, export financing, and investment incentives. By leveraging these resources, companies can reduce the financial burden of diversification, gain access to new markets.
Engaging Diverse Supply Chain Partners	Engage small community businesses to fill gaps and meet consumer expectations, enhancing the overall value of the supply chain.
Leadership and Crisis Management	Develop scalable crisis management processes, prioritize investments, and ensure executive and board buy-in to maintain a flexible and resilient operation.
Evaluating Suppliers	Conduct thorough evaluations using criteria such as location and employee capabilities, supported by credible market intelligence for proper supplier qualification.
Navigating Legal and Compliance Issues	Comply with international trade laws, tariffs, and regulatory landscapes to ensure uninterrupted operations and uphold reputational integrity through due diligence and proper frameworks.
Incorporating Local Content	Companies can incorporate local content into their products, such as using locally sourced raw materials, to tap into local supply chains.

Tracking the Pulse: Metrics for Supply Chain Diversification

Measuring success in supply chain diversification involves monitoring various metrics to ensure the supply network’s resilience and alignment with business goals. Regular analysis of supplier performance, cost-effectiveness, delivery times, and risk mitigation efforts guides decision-makers in maintaining an adaptive and robust supply chain.

Continuous Monitoring and Review of Diversified Supply Elements

Maintaining an effective diversified supply chain requires ongoing scrutiny. Comprehensive dashboards that track supplier performance, including quality, cost, and timeliness, are central to this process. Supply chain managers rely on these dashboards to detect disruptions and adapt with agility. Supplier scorecards provide an at-a-glance review of current and potential suppliers’ reliability, reinforcing the supply chain’s multi-layered structure.

Keeping Supply Chain Diversification Aligned with Business Strategies

Diversification efforts must correlate with overarching business objectives. Changes in market conditions or the introduction of new products often warrant a reassessment of supply chain configurations. Reviews of key performance indicators (KPIs) such as inventory turnover, order accuracy, and customer satisfaction help ensure supply chain operations are propelling the business forward rather than holding it back.

Realignment and Adjustment Strategies

Adaptability is the cornerstone of supply chain sustainability. Companies must stand ready to realign and adjust their supply chain strategies to counter emerging threats or capitalize on new opportunities. Scenario planning tools can simulate various supply chain disruptions, preparing decision-makers to pivot operations as needed. Regular strategic reviews facilitate anticipation of market shifts, which can dictate when to onboard new suppliers or phase out underperforming ones.

By diversifying your supply chain, you can mitigate risks, reduce costs, improve quality, and increase flexibility, ensuring your business remains competitive and responsive to market changes. However, successfully implementing these strategies requires expertise, robust tools, and a dedicated approach.

Leverage the specialized services and expert guidance offered by Align MFG to transform your supply chain into a resilient and future-ready structure. Contact us today at Align MFG to explore our comprehensive solutions tailored to your unique business needs. Let’s build a supply chain that not only withstands disruptions but also drives your business towards sustained growth and success.