The Impact of Localised Manufacturing on Sustainability in the Fourth Industrial Revolution

In part two of this series on the impact of Covid19, Jonathan Burdette, Global Industry Principal at SAP Customer Experience looks at how the pandemic is creating better outcomes for sustainability through a shift to local supply chains and on-demand manufacturing.

Covid19 and global lockdowns have resulted in demand-led localised manufacturing.

As global markets shut down, B2B organisations were under mounting pressure to secure businesses, by adjusting operations to reduce risk and liability. On one hand, B2B manufacturers faced the pressure of satisfying existing clients. However, having a large volume of inventory when nobody knows when the lights will be switched off is a risky strategy. A complex supply chain in an uncertain future could prove to be a significant liability.

Traditionally, B2B industrialists have been reliant on long and complex supply chains with parts being produced in multiple locations before being shipped to a final destination. However, in a period of deep uncertainty, a complex multi-location supply chain with long lead times simply won’t cut it. Producing a high volume of inventory in an unpredictable market is a high-risk strategy.

In order for companies to mitigate the risks, there has been an increasing shift to localised manufacturing. Many manufacturers have narrowed their focus to thinking in terms of the short-term vision and are moving to processes that produce industrial parts in response to demand. There is growing pressure on businesses to lower the cost per transaction and streamline bloated supply chains.

The manufacturing of personal protective equipment (PPE) provides a good example of how supply chains and manufacturers are adapting to global change. Traditionally, PPE has been produced in Asian markets that have lower labour and raw materials costs. With an increasing demand for PPE, various countries are focused on prioritising production in local markets, with government contracts mandating a relocation of the manufacturing base to the home country.

Globally, B2B manufacturing will see a shift to more localised trade, with a greater percentage of industrial goods being produced in Europe, the UK, and the US. A complex supply chain is a liability for manufacturers; in the case of global lockdowns, it could mean that production is shut down, with the end result being that PPE cannot get to where customer demand is.

Localised manufacturing could result in better sustainability outcomes

The growth of localised manufacturing could provide a viable use case for technologies such as 3D printing. While 3D printing has been previously seen as an expensive method of manufacturing in terms of the cost per unit, the reshoring of production allows space for more creative processes within B2B manufacturing.

The presence of a local 3D printing facility next to a local shipping hub could be a convenient way for more local demand to be fulfilled in the home country. This could be the ultimate game-changer, as it would mean that B2B industrial parts could have fast turn-around times, being produced in a matter of days, as opposed to weeks in a global supply chain.

The cost savings of producing less inventory and aligning manufacturing to demand would pass down the supply chain, with the effect of making the manufacturing more sustainable.

By making manufacturing hubs closer to local markets, a shorter, less complex supply chain is kinder to the planet, as a result of a reduction in carbon footprint. Streamlining the supply chain minimises the need to transport parts across the world in large shipping carriers. Furthermore, it results in less inventory being carried, as products are made in response to fulfilling local demand.

In effect, the coronavirus is driving a reverse of globalisation. The simplification of processes may lead to smaller, more localised operations, and therefore, less urgency to hold a high volume of inventory. Streamlining processes and reverting to a simplified supply chain will accelerate the path to digitising manufacturing, allowing companies to reap the benefits of more efficient processes, resulting in lowered costs and improved productivity.

Localised production also means that manufacturers can make products that are customised according to customer demand. Not only does the shift to local manufacturing offer financial incentives and efficiency gains, but it also means that supply chains will be more sustainable by default. The forward march towards the fourth industrial revolution provides key opportunities for businesses to employ circular models by designing out waste and inefficiency, resulting in improved manufacturing processes that lead to leading to better outcomes for the future of sustainability.

Across every industry, there will be greater recognition of the benefits of modernising operations and revitalising B2B manufacturing for the 21^st century. The pandemic won’t last forever, but when certain segments of manufacturing come back to developer markets, the shift to digitalization will be long-lasting and permanent.