The Value of Regional Supply Chains
As companies navigate the current risk-laden global environment, regional supply chains have increased in popularity. The wars in Russia-Ukraine and the Middle East have spurred concerns about the risks associated with global supply chains. For example, look no further than the incident of exploding pagers in Lebanon as it highlights security risks in the end-to-end supply chain. Or think about the impact of rerouting around the southern tip of Africa due to the Iran-backed Houthi rebels attacking ships in the Suez Canal. Aside from the critical risk, these incidents have been inflationary over the long-term and have created disruptions and extended lead-times across-the-board. Thus, forward-thinking executives are transitioning towards local and regional supply chains with friendly countries where they have greater control with geographic proximity.
Local & Regional Supply Chains Fuel the Economy
Local and regional supply chains fuel the economy. Manufacturing is a key contributor to economic success. For example, in the U.S., for every $1 invested in manufacturing contributes $2.67 to the economy. Thus, it is no wonder the U.S. is focused on revitalizing manufacturing with the Made In America Manufacturing Initiative, their focus on deregulation in support of manufacturers, tax cuts for manufacturers to stimulate growth, and tariffs to level the playing field with other countries. Refer to our recent lengthy interview with Authority Magazine on tariffs for more information on this hot topic.
Similarly, as I met a group of top-notch global consultants in Argentina, it highlighted the importance of manufacturing in stimulating to strengthen the economy. Argentina is focused on manufacturing to strengthen their economy as they offer incentives to manufacturers. In the last few years, they have made dramatic progress in dampening inflation from 25% per month to 2-3% per month (and still declining). As they slashed subsidies (per our tour guide), regulations and government spending, consumers had to cut back; however, they appreciate that inflation has stabilized. And, they are interested in exports to fuel the economy.
Argentina is already right behind Brazil (with Colombia in the mix as well) in South America’s exports to the U.S. (with huge potential with high consumption), and they export to several South America’s countries (stimulating local and regional supply chains). Argentina is well positioned in the regional supply chain since they border five countries including Brazil which is the number 1 manufacturer in South America, two modern ports, significant natural resources (including oil, natural gas, lithium, and copper), and a skilled workforce. They also have a manufacturing base in automobiles with companies like Toyota and Ford, pharmaceuticals, food and beverage (as they have a substantial agricultural base), and technology and electronics (with government incentives focused in this area).
As more companies reconfigure their supply chains to mitigate risk, better control and ensure product supply, and refocus on friendshoring, Latin America manufacturing has vast opportunity. The U.S. will need to replace volume at scale as it transitions away from risk-laden China (refer to our recent Supply Chain Chat discussion with an expert on China discuss this topic). This is why Mexico has become the U.S.’s #1 trading partner and why the U.S. is stimulating manufacturing; however, there remains significant opportunity for Latin American manufacturers to export and fuel their economies. China’s exports to the U.S. in 2024 was $439 billion whereas Argentina’s were only $40 billion with their total exports at $337 billion.
Take-Aways, Impacts & Priorities
The key take-away is that opportunity abounds. It will go to those companies ready to take advantage of the opportunities as they arise. For example, local manufacturers will have companies contacting them to source local supply. However, you must be prepared to thrive. Scale up your manufacturing capabilities, cross-train resources, invest in top talent, upgrade your technology, optimize your ERP system, and roll out SIOP (Sales Inventory Operations Planning) processes to transition from a “reactive to proactive” strategy. SIOP will help you better predict and take advantage of revenue opportunities by providing forward-thinking strategies and surfacing key decisions to support scalable, profitable growth. To learn more about how to roll out a SIOP process, download our complimentary book, SIOP: Creating Predictable Revenue and EBITDA Growth.
As the Americas ramp up, don’t miss out on the opportunities to scale up manufacturing, provide a superior customer experience with rapid lead times, accelerate your new product development and R&D successes, and contribute to the local and regional economy. Rev up your engines with local and regional manufacturing and supply chain success!
If you are interested in reading more on this topic:
Unlocking North America’s Manufacturing Potential