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However you feel about climate change and the best practices to curb its effects, a few things have become abundantly clear to supply chain managers:
In light of research from 2016 demonstrating that a staggering 80% of greenhouse gas emissions come as a result of a company’s supply chain rather than it’s own processes, the days of partnering with suppliers located solely all across the world are numbered. As more companies focus their efforts on eco-friendly approaches and strategies, they're looking for ways to utilize more local solutions. This new push is towards supply chains composed in, large part, of domestic businesses. These partnerships help reduce greenhouse gas emissions in some measure.
This shift toward regional ecosystems will serve to decrease some of the complexity of the supply chain, lessen the environmental impact of the supply chain, and increase the resilience of supply chains to widespread issues, such as those caused by the COVID-19 pandemic.
While this approach can decrease some of the complexities found in international shipping, it also introduces new challenges such as local sourcing and manufacturing.
In industry lingo, a regional ecosystem is an interconnected web of businesses located within a relatively small area that, together, make up a local supply chain. This means that suppliers, manufacturers, and other companies involved in the process can more easily work with one another to most effectively manage the flow of certain goods within the domestic regions in which they share business dealings. These businesses are in the same country, often within the same state, and in some cases, perhaps even in the same city or town.
Compare this with a global supply chain, where all parts of the system spread out across the world. A global supply chain may consist of a supplier in one country, a manufacturer in another, and additional parts of the process in their own respective countries.
Regional ecosystems provide numerous benefits to supply chains. The following three benefits are some of the main reasons why supply chain managers have shifted their focus from primarily global supply chain strategies to more domestic ones.
Having everything in one relatively confined region is much easier to manage than dealing with various parts of your supply chain spread out across the world, making this one of the most intuitive benefits of a regional supply chain. Decreased complexity also provides supply chain managers with extra time which can be devoted to improving processes rather than triaging situations that develop across a complex global system.
When goods only need to travel a few miles, or even a few hundred miles, the environmental impact is significantly lower than when said goods have to travel thousands of miles from other countries. Maintaining a regional ecosystem means that supply chains produce generally fewer carbon emissions than they would if they focused on more international trade. Having said this, this statement does not always hold true and depends on the situation.
For instance, even if you maintain a good regional ecosystem, that does not automatically imply that you do not deal in anything outside of your city, state, or country. It can indeed help cut down on your carbon footprint, but if you turn around and double down on international shipping, you begin to negate the benefits again. There is a balance that needs to be maintained in order to reap the eco-benefits of regional ecosystems.
In an age where environmental sustainability makes headlines daily, this is an incredibly important point to keep in mind.
Issues like those caused by the COVID-19 pandemic were primarily seen as thought experiments prior to 2020. None of us ever dreamed that the world would be so drastically affected by a virus until it actually happened.
While it’s hard to say that any part of the pandemic has been good, the issues it caused have brought to light just how vulnerable and complex global supply chains are in their present state. This has helped us gain a better understanding of these weaknesses and identify ways to fix them.
Comparatively, regional supply chains had a better ability to adjust throughout the pandemic. Many experts predict that regional supply chains will lessen the dependence on using China for manufacturing, giving other countries more autonomy in their supply chain practices.
All in all, slightly delayed shipments of goods were better than goods that couldn’t come into the country at all due to travel and transport restrictions. It took a pandemic for many supply chains to realize just how dependent we were on these global manufacturing relationships.
Across the world, but in America specifically, regional ecosystems are the ones looking to lead the charge into better, more resilient, and sustainable supply chain practices. It’s unlikely that we can continue on our current trajectory as environmental sustainability concerns rise with every new large-scale natural disaster.
Supply chains spread across the world are particularly susceptible to the largest disruptions that come from global pandemics and disasters, and perhaps the best way to overcome these issues is by tightening up operations and turning our attention to what we can do locally.
There may be inexpensive or more abundant products in other countries, but at this point, the long-term risk to sustainability, resiliency, and eco-friendliness doesn’t seem to be worth the potential benefit.