Reshoring in certain industries, i.e. gathering larger stocks of products and components for production and diversifying the sources of their acquisition, are the most likely actions that manufacturing companies will take as a result of the COVID-19 pandemic. This is the conclusion of the latest report “Global Manufacturing Risk Index 2020” of the international consulting firm Cushman & Wakefield. In addition, it ranked the countries in terms of their expected capacity to ‘defrost’ their manufacturing sectors and to lift the restrictions and get companies back to normal.
Experts from Cushman & Wakefield analysed the impact of the coronavirus pandemic on global industry and the current conditions in individual countries and provided forecasts for industrial production resumption. With the launch of factories after the lockdown, new trends in manufacturers’ behaviour appear. They are a response to the global pandemic.
The authors of the report classified the most probable actions in three groups corresponding to the time horizon in which they will occur.
Nearest and short-term perspective
Production companies will most likely return to storing larger stocks. Abandoning just-in-time stock management until supply chains and production lines are restructured will increase flexibility and reduce the risk of disruption in the event of a second wave of pandemic or a longer lockdown period.
There will be diversification of sources from which components can be procured, including from local markets or neighbouring countries located closer to production facilities, while increasing stocks.
For some industries, the solution will be reshoring, locating plants and sources of components closer, and restructuring supply chains and production lines, which would again enable just-in-time stock management.
Reshoring would enable shortened supply chains, effectively shortening long lead times, giving manufacturing companies greater control over production volumes, allowing them to respond flexibly to demand. Furthermore, automation, robotics and 3D printing make reshoring an attractive solution in terms of costs, which production companies had already pointed out before the pandemic due to wage increases in China and other Asian countries.
Experts also point out that offshoring is becoming less profitable also due to new trade agreements (e.g. the Brexit Agreement, the North American Free Trade Agreement) and trade wars, which, among other things, have increased duties on both finished products and raw materials. The significant disruption of global production caused by the ongoing pandemic has created the right conditions for global suppliers of finished products and parts to continue the discussions and plans for reshoring that started even before the COVID-19 pandemic.
On the other hand, reshoring on a mass scale – apart from the feasibility and attractiveness of this solution – is not realistic and will not happen in the near future.
To build resilience in the event of a second pandemic wave or second lockdown period, manufacturers are more likely to address the two most pressing vulnerabilities: materials and component sourcing and supply chain disruptions,” said Lisa Graham, EMEA Head of Industrial Research at Cushman & Wakefield.
Ranking of the best locations for industry
As manufacturing companies are trying to safeguard their production lines while developing a strategy for restoring profitability, Cushman & Wakefield also included in its Global Manufacturing Risk Index 2020 report a list of locations for industrial manufacturing in 48 countries in Europe, North and South America and Asia. Individual countries have been classified according to their expected capacity to ‘defrost’ industrial sectors and to lift pandemic-related restrictions.
The ranking is based on the evaluation of six key variables, weighted according to their estimated contribution to the recovery of the manufacturing sector.
Although the coronavirus paralysed Chinese production facilities for several weeks, the country is still the leader of the baseline scenario ranking. Second place went to the United States.
Both China and the U.S. offer a large consumer market, ample labor supply and incentives at both the federal and state level, as well as an established infrastructure network,” said Jason Tolliver, global head of newCommerce research at Cushman & Wakefield.
“With the rapid adoption of technology into production processes, the U.S. and its higher-cost workforce could start to be better aligned to compete with China for manufacturing jobs,” added Tolliver.
Czech Republic in Top 5
China has maintained its leading position in the baseline ranking, which does not yet take into account the full impact of the current pandemic. “Diversification combined with advancement in the value chain while focusing on telecommunications, high technology (40% of robots manufactured worldwide are manufactured in China) and computers haves to some extent protected the Chinese industry from the effects of trade wars,” reads the report.
The United States has maintained second place in this year’s baseline ranking, although this country is a party to trade wars. The third place went to India, which advanced from the fourth position last year. “India, which already has a strong position in the pharmaceutical, chemical and machinery sectors, i. e. the main axis of the US-China trade dispute, may benefit from relocating production facilities from China to other Asian countries,” according to the report.