Technology Causing ‘Disruptions’ in Supply Chain Networks

Cutting edge technology companies are expecting robust growth, and preparing for it by weighing a broader range of factors when building their manufacturing supply chain networks, according to the fifth annual United Parcel Service Inc (UPS) Change in the (Supply) Chain (CITC) survey.

The survey, conducted for UPS by IDC Manufacturing Insights, found that while high-tech companies still favor the strategy of off-shoring as a means to cut labor costs, a large number also have begun "right-shoring."

This strategy, the survey reveals, optimizes the supply chain to take advantage of cost benefits and local resources to achieve the best customer service and overall profit margins.

CITC also shows high-tech companies increasingly are entering emerging markets and exploring 3D printing for new product designs and prototypes.

IDC polled 516 senior high-tech supply chain professionals. The results reveal an ongoing evolution in their supply chains that affects the placement of companies' owned facilities and the selection of their suppliers.

"High-tech companies are building more flexibility into their shoring strategies and supply chains so they can respond better to demanding market dynamics," said Dave Roegge, high-tech marketing director at UPS. "They're thinking more holistically about their strategies to evaluate their transportation costs and the time it takes companies to deliver goods."

"Customer requirements change rapidly, especially considering the steady stream of high-tech innovations and the fact that there is little to no downtime between product generations," Roegge said.

Many of these companies see right-shoring as the solution. Right-shoring balances a number of factors to determine the proximity of sourced materials to production, warehousing and distribution.

These metrics could include cost, quality and the time it takes to recover from any operational failures. Forty five percent of survey respondents said they use right-shoring strategies.

Off-shoring, which moves manufacturing or assembly to countries with low labor costs, remains the most common strategy.

Forty seven percent of survey respondents said they off-shore. Near-shoring, which moves manufacturing or assembly closer to the location of demand, continues to gain in popularity as companies improve service levels, reduce inventory in transit and seek greater control over product quality and intellectual property. Thirty five percent of respondents said they near-shore. That's a gain of 25 percentage points since 2010.

"It's about having a nimble supply chain," Roegge said.

UPS is a global leader in supply chain and logistics.

With the increase in industry export growth and emergence of new opportunities, the growth outlook for high-tech exports is strong, the CITC survey showed.

Forty six percent of the respondents said they expect industry export growth globally to increase at the current pace over the next two years, while 28% of them expect faster growth.

High-tech companies have successfully penetrated many emerging markets.