Manufacturing & Supply Lines: Stay Global or Go Regional?

A recent study of more than 1,200 senior executives across 11 industries, including the chemicals and life sciences industries, say they plan to increase regionalization of their supply chains and manufacturing to mitigate supply disruptions.

A recent study of more than 1,200 senior executives across 11 industries, including the chemicals and life sciences industries, say they plan to increase regionalization of their supply chains and manufacturing to mitigate supply disruptions.

One of the pressing strategic and operational questions facing the bio/pharmaceutical  industry as well as other industries is how best to mitigate supply disruptions while optimizing supply operations. That question engenders further questions for companies about their supply chains and locations of manufacturing operations: regionalize or keep a global focus.

To gain a perspective, the management-consulting firm, Accenture, conducted global research among 1,230 senior executives across engineering, production, supply chain and operations in 11 industries, including the chemicals and the life-sciences industries. The study, “Resiliency in the Making,” is based on a survey conducted January – March 2023 among senior executives in the following industries: chemicals, life-sciences, aerospace and defense, automotive (OEMs), automotive (ancillary, parts), consumer goods and services, high-tech, industrial equipment, metal and mining, oil & gas (upstream and downstream,) and utilities. Respondents were from the US, Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, Spain, Sweden, and the UK.

The Accenture study showed that companies are ramping up regional suppliers and production facilities to become less vulnerable to disruption. By 2026, 65% of companies surveyed said that they intend to buy most key items from regional suppliers, up from 38% today. Even more organizations (85%) plan to produce and sell most of their products in the same region by 2026, almost doubling from 43% today.

According to the report, regional sourcing and production are important to becoming less vulnerable to disruption, but the Accenture report says that not enough to reach sustained resiliency. The study pointed to the importance of increasing “digital maturity,” through investments in data, artificial intelligences, and specific solutions such as digital twins. “Having more mature capabilities in these areas helps companies build reconfigurable supply chains and autonomous production,” said Accenture in its analysis. “These capabilities also enable dynamic, sustainable product development and support decentralized, real-time decision-making at the frontlines of operations.”

The study points out that disruptive events have surged in recent years, from geopolitical shifts and extreme weather to technology breakthroughs and material and talent shortages with few businesses sustaining their resilience and long-term growth amid the turbulence. For example, in 2021 and 2022, companies missed out on $1.6 trillion (estimated at $116 billion for the life sciences and $61 billion for the chemicals industry) in additional annual revenues because their engineering, supply, production, or operations were disrupted. At the same time, the 25% most resilient companies achieved 3.6% higher annual revenues than the 25% most vulnerable companies, according to the Accenture analysis.

“Resiliency has become an opportunity for growth, not just a strategy for survival,” said Sef Tuma, Global Engineering and Manufacturing Lead, Accenture Industry X, in commenting on the study. “Taking advantage of this opportunity requires companies to drive the digitization of engineering, supply, production and operations processes. Solutions like digital twins and technologies like generative AI can help companies adapt faster to sudden changes and take data-driven, real-time actions.”

On average, companies are investing $1 billion in 2023 to digitize, automate, and relocate supply and production facilities, which is expected to increase to at least $2.5 billion in 2026, according to the Accenture report.

“When disruption struck, many companies quickly applied short-term fixes to their complex global production and supply networks,” said Sunita Suryanarayan, Global Supply Chain and Operations Resiliency Lead at Accenture, in commenting on the study. “These networks had been designed for cost efficiency and just-in-time deliveries. Now is the time to strategically redesign them for multi-sourcing, without creating unwieldy silos or new bottlenecks, and make them more transparent and agile with data and AI to drive sustained resiliency.”

As part of the research, Accenture developed a model to measure engineering, supply, production, and operations resiliency on a 0-100 scale. On average, companies achieved a score of only 56. The report recommends three areas companies should focus on to increase their resiliency as outline below.

Visibility. The report says that companies should make supply chains and production processes more predictable and autonomous. For example, smart end-to-end control towers monitor processes and analyze different scenarios in real time to detect and correct issues early on. Today, only 11% have near real-time alerting; 78% need at least a week to fully understand the impact.

Resiliency in design. The report says that moving activities earlier in the development process allows companies to get products, processes and ways of working right the first time. For example, digital twins—digital replicas of physical production facilities down to individual assembly lines and machines—allow product designers and engineers to identify and troubleshoot potential prototype issues or defects and iterate the design before production begins.

New ways of working. The report says that businesses must upskill the workforce in data, AI, and other digital technologies so they can use predictive and visualization tools to make data-driven decisions at the frontlines of business. Today, only 17% of companies already have such a multi-skilled, digitally.

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