In view of the many challenges, companies in the automation industry are attempting to streamline their supply chains, position themselves more regionally, and reduce their dependency on individual players within their supply chains. Here are some examples where this has been successfully implemented:
In the region for the region – the trend towards regionality
To ensure stable and adaptable supply chains even during crises, companies are increasingly moving towards regionalization. This involves relocating production or services closer to suppliers or customers. By regionalizing, companies can position themselves to be less reliant on international changes and trade route disruptions.
ABB: ABB has invested 170 million US dollars in the USA in order to be closer to its customers. This investment in regional facilities will not only increase supply chain security for ABB's customers but has also enabled the company to reduce delivery times by up to 50%. ABB now generates 85 percent of its sales in the USA through products that are manufactured locally, thus supporting the trend towards regionalization.
Festo: In line with its "Local for Local" strategy, Festo is ramping up regional production. For example, a new plant in India was built to secure supply chains and meet the needs of the entire Asian market. Similarly, the European market will be supplied locally via a production site in Turkey and a newly built logistics center in Saarland. Key decision drivers for Festo included optimizing customer service with faster delivery times and high product availability, as well as boosting resilience and cutting emissions.
While regionalization has the advantage that transport routes between production sites and specific customers or raw material producers become shorter, the transport routes to other locations may become longer and therefore more expensive. In addition, the regionalization of production facilities often requires large investments and can lead to capital being tied up in the long term. This poses an increased risk, particularly in countries characterized by political instability. In addition, regionalization necessitates the recruitment and training – or development – of new skilled workers. The decisive factor for the choice of location is therefore not only proximity to the relevant sales markets, but also cost-effective access to the necessary resources and expertise, as well as political stability.
Supplier diversification – but only after weighing up all factors
Dependence on individual suppliers can exacerbate supply bottlenecks.
Diversifying the supply chain is often a key priority for companies. Despite the many advantages this can bring, the effort and challenges involved should not be underestimated. Switching to "multi-sourcing" also entails additional costs for the analysis, integration, and quality control of new suppliers. The list of obstacles is long and requires a thorough cost-benefit analysis when determining the right level of diversification for a company’s supply chain. Nevertheless, it is clear that diversifying the supply chain offers many advantages. For instance, Emerson’s 2023 annual report described the company's attempts to actively establish various sourcing options for critical components and raw materials to avoid reliance on individual suppliers.
In the short term, increasing stock levels can also enhance resilience. However, since this also involves additional costs, a long-term strategy should be developed in parallel. In this way, the optimal balance between resilience and cost efficiency can be found in order to optimally prepare for the future.
