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Due to Volatility, Manufacturers Reconfigure Global Supply Chains

Due to Volatility, Manufacturers Reconfigure Global Supply Chains

January 19, 2011

An interesting piece by McKinsey & Co. in its McKinsey Quarterly publication looks at how companies are being forced to shift how they configure their global supply chains. The article points out that most global supply chains have been set up to manage high-volume production by capitalizing on lower labor costs in China and other countries.

But the relative attractiveness of manufacturing locations is shifting quickly, and as McKinsey points out, standard approaches to a supply chain setup has left companies less able to respond to many of the challenges that have arisen in the past couple of years. (Related article from MDM: Interview – Mexico or China?)

In a McKinsey survey, 68 percent of global executives said that supply chain risk will increase in the next five years.

One way manufacturers are adjusting their supply chains is by what McKinsey calls "splintering." The article outlines how one consumer durables manufacturer – who sent most of its production to China – reconfigured its supply chain by splintering production into four groups categorized based on sales volume and the relative demand volatility. The company also took the opportunity improve its planning processes. For example, the manufacturer stopped trying to predict demand for the most volatile SKUs (moved to the U.S.) and instead manufactured those on-demand.

Read the full McKinsey article on supply chain shifts.

MDM analyzes supply chain challenges and their impact on the independent distribution channel in the next issue of MDM Premium on Jan. 25, 2011. Not a subscriber? Subscribe here.

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