Diversifying Your Supply Chain with Friendshoring
The global supply chain is constantly fluctuating and various factors continue to alter the market, driving competition and forcing adaptation upon its participants. Political tensions between the world’s superpowers are heightening; many consider a “technological war” to be waging.
Friendshoring is a recently coined term that has emerged amongst recent events. It is a strategy that provides companies with a means of protecting their supply chains from being harshly disrupted by geopolitical disputes. It is similar to nearshoring, however, nearshoring is defined as a strategy in which a company moves its operations closer to its final consumers to avoid disruptions. Essentially, friendshoring is a strategy where companies move their operations to countries that are political allies of their home country of operations. This is to mitigate any disruptions that may arise stemming from any geopolitical disputes between rival countries.
While friendshoring can be a great strategy to implement, it can also initiate a chain of unforeseen events. This could prove worrisome. For example, the US implementing aggressive friendshoring tactics, among many other protectionist measures, played a significant role in the recent global chip shortage cycle. Here are a few considerations organizations must contemplate when considering taking a friendshoring approach, courtesy of Supply Chain Brain:
- Geopolitical Risks: Before committing to a friendshoring strategy, assess the partner country’s geopolitical risks. What sort of tariffs or quotas are in place between the countries? What is the political environment?
- Regional Accessibility: Accessibility is imperative for global supply chain operations. Consider supplier access and opportunities. What will be sourced locally as opposed to far and abroad?
- Product Quality: Quality is of utmost importance. Companies must ask themselves, “Will moving operations to this country lessen our products’ quality?” Quality should never dip when friendshoring.
- ESG (Environmental Social Governance): ESG is becoming more widespread, and for good reasons. The promotion of ESG is critical for a better future.
- Cost: Friendshoring can be costly; it is best to understand the price of conducting operations in the targeted country at every step of the way. The previously mentioned considerations should be weighed for the present and future to help mitigate financial loss.
Due to the political sensitivities of today’s global economy, friendshoring has quickly become a viable strategy for diversifying and strengthening one’s supply chain. Many organizations are beginning to implement friendshoring strategies as a way to prepare for potential sudden policy changes or conflicts that may arise between political adversaries. At its core, friendshoring is another way one can build supply chain resilience.
Converge offers customers unparalleled supply chain solutions and expert component sourcing. With entities located throughout the globe, Converge can source hard-to-find components for customers, ensuring continued operations regardless of circumstances. Contact a Converge representative to learn more.