We started talking about “supply chains” in the mid-1990s. At that time, global political conditions were encouraging companies to expand into international markets. The internet world was gaining in popularity and telecommunications was booming. The business world changed: instead of the outdated model where a single manufacturer was responsible for performing most of the activities involved in bringing a product to market, international supply chains used specialized suppliers. Production costs and services dropped. Consumers were able to take advantage of better quality and preferred pricing for finished goods.
During the pandemic, the supply chains that had previously been considered trustworthy were found to be fragile. The belief in globalization is also now being challenged. So, relying on imports and foreign suppliers is seen to be risky. This has led to a change of focus on supply chain sovereignty.
Supply chain sovereignty is a company’s ability to maintain control over its supply chain and minimize dependence on external suppliers. It involves ensuring that critical aspects of the supply chain, such as sourcing of raw materials, manufacturing processes, and distribution channels, are managed in-house or using trusted partners.
By increasing supply chain sovereignty, companies maintain greater control over their supply chain, which reduces the risk of disruptions, improves operational efficiency, protects intellectual property, and ensures greater flexibility in responding to changing market conditions and customer demands.
However, supply chain sovereignty is not easy to achieve, especially for large and complex supply chains across multiple geographies and involving numerous suppliers. Significant investment is needed to:
Some industries have started to reduce the number of suppliers in some regions, but many organizations still plan their supply chains around best-case scenarios without creating contingency plans. Companies must acknowledge and plan for scenarios where there is variability in lead times, input costs, and other factors.
Many companies are failing to manage their second and third-tier suppliers. Ignoring risks in this area can lead to significant unplanned costs. The old supply chains relied on the fact that manufacturers trusted suppliers’ lead times, costs, and quality. The last three years have exposed the risks of doing that.
One argument is that cost and efficiency should no longer be the main metrics in determining how a supply chain works.
The following options can be evaluated to set up better supply chain sovereignty:
We aren’t at the point where a company can completely depend on a local supply chain. The cost to source all raw materials and products locally is too high. Technology can help but better supply chains also require trust to work. Sovereign supply chains can be built; however, they require moving away from offshore sources and becoming more resilient by forming long-term, mutually beneficial partnerships with local suppliers.
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