Redefining Tomorrow's Supply Chains
The attractiveness of developing supply chains in low-cost countries is decreasing. Instead, Swedish companies are moving towards a more regionalised and local supply chain environment. Business Sweden, which assists Swedish companies in growing global sales and helps international companies to invest and expand in Sweden, shares its insights.
The landscape of supply chains is undergoing swift transformations as businesses across the globe take steps to minimise potential risks and ensure their operations are resilient for the future. Global megatrends, the Covid pandemic and the war in Ukraine have prompted a major strategic shift in how companies organise their international supply chains.
"A few years ago, discussions centred around reshoring, followed by nearshoring and offshoring. However, based on discussions with Swedish companies, what we have observed is this returning trend of regionalisation," says Vitaliy Tsvyntarnyy, Business Sweden.
Regionalisation can involve a combination of offshoring, reshoring, and nearshoring, depending on the company's needs in each region. The goal is to optimise the supply chain within each geographical area to enhance efficiency, reduce vulnerabilities, and better meet the needs of local customers.
"Ten years ago, cost, capital, supply chain quality, operations and service were the driving forces for Swedish companies. Today, the key trends in supply chain management revolve around resilience, agility and sustainability, " says Vitaliy Tsvyntarnyy.
When Business Sweden consulted 25 supply chain executives from Swedish companies regarding their foremost considerations in making footprint decisions, several key strategies emerged. Firstly, there is a strong emphasis on maximising automation wherever feasible. Secondly, there is a preference for boosting the proportion of in-house produced goods or services. The third preferred approach is nearshoring, considered only when automation and in-house production are not viable options.
Alongside geopolitical tensions, the technology race and labour competition, changing regulations such as Corporate Sustainability Reporting (CSRD) are pushing companies to step up their climate action.
"Companies are trying to decarbonise their production and logistics as much as possible. There are hopes that maritime logistics can become a bit more sustainable by utilizing e-fuels, synthetic fuels, or hydrogen. That’s where the Nordic maritime lines and specifically the Bothnia area, as one of the clusters with enormous accessibility of e-fuels, or hydrogen, can become European leaders, " says Vitaliy Tsvyntarnyy.
He continues:
"So yes, Swedish companies work a lot with clean energy and logistics, but according to our study this is the smallest problem. The big problem is the overall inefficiencies we have been running in our obese society."
The transition into shorter and more sustainable supply chains will, according to Business Sweden, require closer collaboration between stakeholders than ever before.
"Occasionally, a company may work with as many as 20 suppliers but prefers to streamline this number to enhance collaboration. In doing so, they are often prepared to pay a higher price if it allows them to influence their suppliers' commitments to sustainability and quality improvements, " says Vitaliy Tsvyntarnyy.
Source:
Rewiring Global Supply Chains, Executive Global Insight, September 2023; Business Sweden
Vocabulary list
Offshoring: A company moving parts of its operations, often manufacturing or services, to another country to take advantage of lower labour costs, taxes, or other benefits. Offshoring can occur far from the company's original market.
Reshoring: When a company decides to move its production or services back to its home country. Reshoring is often driven by a desire to reduce delivery times, improve quality, protect intellectual property, or to enhance the company’s image by supporting the local economy.
Nearshoring: Moving production or services to countries that are geographically closer to the company’s main market but still offer cost advantages compared to the home country.
Regionalisation: This concept focuses more on an overarching strategy where companies tailor their production and supply chains to specific regions to better serve those markets. Regionalisation may involve a combination of offshoring, reshoring, and nearshoring depending on the company's needs in each region.
