Supply chain restructuring: seeking balance between resilience and efficiency

Supply Chain Restructuring: Seeking Balance Between Resilience and Efficiency

Column Category: Supply Chain Management / Global Supply Chains

[Event Overview]

Over the past four years, global industrial manufacturing and construction supply chains have experienced severe disruptions, including the COVID-19 pandemic, geopolitical conflicts, and natural disasters. These events exposed the fragility of supply chains and pushed "supply chain resilience" to the center of corporate strategy. However, as supply chain pressures receded from post-pandemic peaks in early 2024, cost and profit margin pressures have once again come into focus. The National Association of Manufacturers' (NAM) fourth-quarter 2023 *Manufacturers' Outlook Survey* showed that 86.2% of respondent companies had taken measures to reduce supply chain risks over the past two years. Today, a growing number of companies are re-examining the balance between resilience and efficiency, optimizing performance and cost by restructuring the foundations of their supply chains.

[Supply Chain Background]

After the shock of the pandemic, global supply chains have shown a clear trend toward regionalization and restructuring. The U.S. share of merchandise trade with China fell from 21.2% in 2018 to 13.9% in 2023, while Mexico has surpassed China to become the United States' largest trading partner, accounting for 15.4% of U.S. merchandise trade. At the same time, trade between Mexico and China has also been growing. This shift is not unique to North America; similar supply chain restructuring is occurring globally. Economist Impact's *Trade in Transition 2024* project shows that as of the end of 2023, 97% of surveyed companies said they were restructuring their supply chains in some way, up from 92% in 2022.

[Corporate Decision-Making Logic]

Why are companies turning back to efficiency after prioritizing resilience? The main drivers include the easing of global supply chain pressure indices, rising operating costs, and shareholder demands for profit margins. During the COVID-19 pandemic, companies prioritized supply continuity and accepted higher costs and longer lead times. But as disruptions eased, management began to focus on efficiency. Many companies are seeking to move production back to the United States or closer to end consumers, while strengthening cooperation with U.S. free trade partners. In addition, companies are also examining their tier-two and tier-three supplier networks to reduce exposure risks related to raw materials and critical components—this is part of supply chain risk management. Deloitte notes that industrial manufacturers are exploring near-shoring options such as Canada and Mexico, as well as reshoring options back to the United States. At the same time, Asian trading partners such as India, Malaysia, Thailand, and Vietnam have also experienced growth.

[Supply Chain Impact]

• The restructuring of supply chains has had profound impacts on all parties involved.- Supplier level: First-tier suppliers may face order adjustments, while second- and third-tier suppliers bear greater pressure, as companies demand higher transparency and networking, which places higher requirements on supplier management.
• Manufacturing network: Capacity layout is shifting from centralized to decentralized, with an increase in nearshoring and friend-shoring production, gradually forming regional manufacturing clusters.
• Logistics system: Logistics companies need to adapt to new trade routes and transportation models, especially the growth of intra-North American trade, which requires stronger logistics integration capabilities.
• Procurement system: Global sourcing strategies are shifting from simply selecting the lowest bid to comprehensively assessing risks and total cost of ownership, with procurement costs and lead times becoming key trade-off factors.
• Inventory management: Companies may maintain higher safety stock to buffer against uncertainty, while simultaneously striving to reduce overall inventory levels to balance efficiency and risk exposure.

These changes have increased the complexity of supply chains, but also enhanced supply chain resilience, making enterprises more adaptable when facing future shocks. At the same time, the degree of digitalization and data transparency have become important supports in the restructuring process.

【Regional Impact】

• North America: Mexico and Canada have become the main beneficiaries of nearshoring. U.S. companies are relocating manufacturing to Mexico to shorten supply chains and take advantage of the tariff benefits of the USMCA. At the same time, some production capacity is returning to the United States, driving manufacturing investment.
• Asia: Although China's share of U.S. goods trade has declined, other Asian economies such as India, Malaysia, Thailand, and Vietnam have seen trade growth. These countries are absorbing some of the manufacturing capacity that originally flowed to China, forming new regional hubs.
• Europe: European companies are also facing supply chain restructuring. Geopolitical tensions and energy price fluctuations are prompting them to strengthen intra-regional supply chain coordination, for example by seeking alternative suppliers within the EU.
• Middle East and Latin America: With their resource endowments and geographical advantages, these regions may become important nodes for supply chain diversification.
• Africa: Still in its early stages, but its mineral resources and labor advantages make it potentially attractive.

【Future Trends】In the next 1-5 years, supply chain restructuring will continue to deepen. First, enterprises will adopt "dual-source" or "multi-source" strategies to reduce dependence on a single country or supplier. Second, digital and artificial intelligence technologies will be increasingly used for supply chain visualization and risk management, enabling enterprises to respond more quickly to disruptions. Third, ESG requirements are becoming increasingly stringent, and supply chain transparency and sustainability will become important considerations in restructuring. Fourth, global supply chains may form several regional clusters, such as North America, the EU, and Southeast Asia, with enhanced internal coordination within each. Finally, although the importance of efficiency is resurging, resilience will remain the strategic foundation, and enterprises need to establish a dynamic balance between the two to respond to the ever-changing global trade landscape.