Reshoring Revolution: 69% of US Supply Chains to Shift to Americas by 2026

The Globalized Supply Chain models that have formed and become popular in the last several decades have been significantly impacted by recent events. Covid, pirates in the Red Sea, hurricanes, the bridge wreck in Baltimore, and the Panama Canal water shortages are the most glaring examples.

The desire to reduce labor and materials costs comes into stark contrast with transportation spend when we experience these types of disruptions.

The general concept of Lean Manufacturing is often associated with a reduction of inventory and JIT (Just In Time Transportation). More classically, it’s defined as having the materials you need at the point of use, in the quantity you need, when you need them.

Toyota, for example, is often trumpeted as one of the premier examples of Lean Manufacturing. Lineside in the plants, you will find clean and tidy workspaces, with just enough parts to keep the workers busy during a shift from a practical perspective.

What is often confused in that terminology is an application to an overall inventory strategy. While the Lineside build locations in a Toyota plant may only have the materials needed for the next vehicle, next hour, or current shift, I have seen parts stored en mass across the street in large trailer lots and distribution centers.

I recall trailer ratios in the 7 or 9 to 1 ratio during my experience there, with weeks of inventory on hand at any given time for certain parts. Lineside is lean, overall inventory is “Lean” (not skinny), but transportation is not “just in time” being delivered directly to lineside for manufacturing as it arrives.

JIT manufacturing is typically done to reduce inventory carrying costs, i.e., the interest payments on financed raw materials and parts purchases. The problem with this approach is that inventory reduction is a one-time save for removing bloated inventory levels while you are now forced to deliver smaller incremental amounts of inventory, more frequently, to keep up with the pace of manufacturing. 

So instead of one full trailer of parts, you are now getting five partial or LTL-style deliveries a week to fulfill the same demand.

The problem with this model occurs when we experience all the disruptions we have seen in the Global Supply Chain in the last several years. Instead of paying a premium on one shipment, you are now paying a premium on all five. As the Supply Chain backs up, more and more inventory is added to the pipeline, increasing congestion and premiums and causing you to have a cost spiral in Transportation that can become unmanageable while increasing your inventory pipeline and carrying costs again.

A balanced strategy is required to protect your business from external global factors. When prices are low, hedge and buy ahead if you have the capital and storage space to avoid the finance charges or expected fluctuations in raw materials costs. Where practical, reducing the distance between A to B and the number of times materials are touched are good practices to consider when trying to build a secure and consistent supply chain.

While this approach may be less dynamic, I’m not advocating for being static in your approach either. The cost and benefit of procurement and sourcing strategies should be evaluated constantly, particularly as new products and manufacturing plans are being developed.