How reshoring affects global supply chains moving forward

One big, global supply chain? Or several locally optimized? We spoke with Begoma board member, Jan Olhager, Professor Emeritus in Operations and supply chains strategy, about how the concept of reshoring slowly changes the transportation landscape over time.

During the end of the 1900’s, the promise of cheaper labor and lower production costs made many western companies look towards Asia. By outsourcing to other countries, production became cheaper and the supply chains and transportation operations grew longer and more complex.

However, the world is ever changing. After the turn of the millennium, pushback regarding the quality of the products being produced abroad brought the topic of reshoring onto the agenda.

That made several Swedish manufactures bring back the production to factories on Swedish soil, at the end of the 00’s.

– Between 2010-2015, outsourcing production was still the norm. However, Sweden stood out amongst many other countries by having the share of reshoring being two thirds of the outsourcing. In countries like Finland and Denmark, that share was instead around 30 percent, says Jan Olhager.

How the 2020’s changed things up

Most people in transportation and logistics remember how the Covid-19 pandemic made many supply chains grind to a halt, at least temporarily. Swedish manufacturers were no exception.

– The total volume of both outsourcing and reshoring decreased by half during the pandemic. Although, the companies that did act made bigger decisions than before. You could say that during this time, some companies took the opportunity to clean up their global production chains, so to speak.

The main reason for outsourcing is still concentrated around cutting costs, but the appeal of cheaper labor is not the only reason. With a global customer base, outsourcing production closer to a company’s main markets will cut logistics costs as well.

Looking ahead: Reshoring how?

Jan Olhager says that reshoring in different capacities will continue. Global transports over long distances have been under scrutiny from a climate impact perspective for many years. Now, another topic of discussion is the risk associated with global, complex supply chains.

– Tariffs and uncertainties around the world are on the agenda. For some, this leads to inaction. For others, it means taking control of your supply chain. By reshoring parts of the supply chain, a company will become more resilient towards outside risk factors. The number of factors affecting a local supply chain are far fewer than the ones affecting a global one, says Jan Olhager.

He also predicts that we will see an increase in intracontinental transports within Europe. An already existing trend for global companies is diversifying in several geographical hubs, centered in the vicinity of key markets. Production and supply chains in Asia for the Asian markets, production and supply chains in Europe for the European markets, and so on.

– That being said, things like projects and special transports will still be in demand on a global scale. The need for complex transport solutions worldwide will not go away anytime soon, says Jan Olhager.