How Companies Are Overhauling Supply Chains to Ease Bottlenecks | WSJ

- [Narrator] If you've been waiting on a package for weeks, your order might be here, stuck at sea in a shipping container. The COVID pandemic has snarled global supply chains causing massive backlogs and shortages that have some companies stockpiling goods in trailers and chartering private container ships. But these are temporary fixes.

For longer-term solutions, some companies are looking to make sweeping changes to their supply chains, including shifting manufacturing closer to home, but pulling off these strategies can require retooling a complex web of global production, potentially adding new risks and costs. First, here's how a globally distributed supply chain typically works. In this case, for Timberland's Pit Boss boots, a shoe the company sells to consumers in the US and beyond.

Sourcemap, a website that publishes data about supply chains says the materials, including the leather and metal details are sourced from locations around the world, including the US, the UK, China, Japan, South Korea, Taiwan, and Vietnam. All of these materials are shipped to a factory in Bangladesh where the boots are assembled. The boots are transported to a distribution center in Virginia, where they're then shipped off to retail locations and customers around the world.

- Modern supply chains are complex and they're far flung. - [Narrator] Jen Smith has been covering the forces behind the supply chain issues for the "Wall Street Journal. " She says that over the past few decades, supply chains have become increasingly global.

- With every step along the way, there is the potential for disruption, whether it's in manufacturing or in transport, or if you're having trouble distributing it once it gets here. - [Narrator] Lately, disruptions have caused extensive delays, which has driven up the cost of many goods. So some companies are looking at different location strategies to protect their supply chain and their bottom line.

One idea being discussed in corporate boardrooms is called regionalization. This involves setting up factories in multiple parts of the world so that operations in each region are able to supply products to the closest markets. The idea is to minimize risk.

- Supply chain problems happen all the time. The most common pre-pandemic was something to do with a natural disaster or a hurricane or a typhoon or something affects the ability to get stuff on the shelves of your local grocery stores so things are emptied out and then that has a ripple effect on the cost of transporting goods. - [Narrator] So if a company is regionalized, a closed factory in one place only impacts sales in nearby locations.

Companies are also looking at shortening their supply chains through a similar strategy called nearshoring. The concept is pretty simple. It refers to the practice of pulling production that had been moved far away, back to a country closer to where the products are distributed and sold.

And this strategy is becoming more popular. After facing shortages, the Italian clothing company, Benetton, decided to increase manufacturing in Serbia, Croatia, Turkey, Tunisia, and Egypt, closer to where the products are sold in Europe. It's a big move.

The company plans to cut its Asia production by half over the next year or so. It's a reversal of the decades long shift by many apparel companies to Asian factories that offered low cost supplies. Some companies are also using a strategy called reshoring.

It's similar to nearshoring, but in this case, a company that previously moved manufacturing overseas moves it back to the country where it was originally located. - With reshoring, a business may choose to move some of its manufacturing that it had been doing elsewhere back to the US if it had experienced trouble getting the products here, whether there wasn't enough production capacity abroad, or whether there were transportation bottlenecks that were preventing products from getting here when they were needed. - [Narrator] While moving production could solve some supply chain issues, these solutions aren't a fix-all and they still carry risks.

Mainly, they're expensive to pull off. According to a 2020 report, the total combined cost for US and European companies to move manufacturing out of China would come to some $1 trillion over the next five years. And for many smaller companies, the costs are too high to bear.

- Some companies may not have enough money to set up manufacturing domestically. And even if they did, it might not make sense because their product might end up costing twice as much as it does. So they are gonna have to weigh the cost of delays of a product that's made elsewhere getting here.

What does that mean for their bottom line versus would they have as many buyers for that product if they were making it domestically and it costs twice as much? - [Narrator] Overhauling entire supply chains can also take years. (horn honking) Still, some companies think these strategies could pay dividends for the future and help their businesses survive.