Robot working with mobile phone in factory.

The Shifting Shores of High Tech

High-tech takes a holistic approach to supply chain management

Derrick Johnson | UPS

Off-shoring, near-shoring, right-shoring. It’s all about costs, right?

Wrong.

Derrick Johnson

Derrick Johnson

At least not any more. And not in the high-tech industry.

This is according to the Fifth Annual UPS Change In the (Supply) Chain Survey (CITC), which reveals an important shift in the thinking behind high-tech supply chain management.

Increasingly, companies are taking a more comprehensive look at their options, often returning manufacturing and assembly to regions that had become less attractive.

For many years, the companies that design and produce our consumer electronics had a rather simple manufacturing formula: Assemble products in countries where labor costs are lowest. They called the strategy “off-shoring.” By now, we all know it well.

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A flexible and nimble supply chain is a competitive advantage.

The trend took hold in the United States after the early 1980s U.S. recession when manufacturers began seeking lower labor costs in international locations.

It also enabled companies to take advantage of currency rate differentials and to penetrate new sales markets.

When free trade expanded in the 1990s, this spurred global growth and access to the markets.

More recently, manufacturers saw greater value in moving production or assembly sites closer to end consumers. This was the genesis of the “near-shoring” trend. Near-shoring lets manufacturers take advantage of shorter timelines to get products to market. It also helps cut shipping costs.

Nowadays, however, high-tech manufacturers take a more sophisticated approach to building data-driven supply chains.

[Also on Longitudes: The Future of Tech]

Our CITC survey says high-tech companies are warming to a variety of shoring strategies to capitalize on opportunities in established and emerging markets. New this year is the evolution of near-shoring to the concept of “right-shoring.”

Right-shoring is a holistic strategy that balances a number of factors 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.

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High-tech businesses, no matter how large or small, cannot afford to cling to the ways of the past.

Forty five percent of CITC survey respondents said they use right-shoring strategies.

That compares with 47 percent of survey respondents who said they off-shore and 35 percent of respondents who said they near-shore. Respondents had the option to select multiple strategies.

These numbers underscore an undeniable reality that a flexible and nimble supply chain is a competitive advantage.

High-tech businesses, no matter how large or small, cannot afford to cling to the ways of the past. After all, this is an industry that thrives on innovation and one where there is practically no downtime between product generations.

Our research shows quite plainly that right-shoring is no longer just a trendy topic in academic circles. This strategy has reached the mainstream.

New horizons. New challenges. New solutions

The most recent CITC survey gives us some valuable insight into what drives 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 said they expect export growth in their industry to continue at the same rate or faster over the next two years.

A big part of this robust growth 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 percent – already are in China.

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For today’s high-tech firms, there is no one-size-fits-all strategy. 

Clearly, the high-tech market is one that changes rapidly and puts tremendous pressure on companies to adapt to that change.

[Also on Longitudes: Bringing High-Tech Innovation to Market]

It also forces them to confront new obstacles in their quest to enter new 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 break 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.

When it comes to the shoring debate, however, the right answer for many companies sometimes is less obvious. Off-shoring, near-shoring and right-shoring all have their advantages. A lot of factors come into play.

Right-shoring is likely to increase in coming years as companies become more familiar with the practices and as security and regulatory issues prompt them to re-evaluate their supply chain strategies.

But, for today’s high-tech firms, there is no one-size-fits-all strategy. goldbrown2

 

Derrick Johnson
Derrick Johnson is Vice President of Marketing at UPS

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Reprinted with permission of Longitudes, the UPS blog devoted to the trends shaping the global economy.

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