The medical emergency of recent months and the ensuing repercussions on the manufacturing industry have rekindled the debate about back and near reshoring. This has been a hot topic for some time, and has become all the more important at a time when it is proving necessary to rethink the global procurement model. Here at the Varvel Group, we are ready to accept this new challenge, putting all our production capacity into play.
The future of businesses depends on the procurement capacity of those components which are indispensable for production continuity. And the Varvel Group, whose production has been made in Italy for the last 65 years, is the ideal partner to tackle this challenge.
Valsamoggia (BO), 30 January 2020 – There are a number of Italian firms which in recent years have decided to review the decisions that had led them to shift a substantial share of their production, either directly or through suppliers, to countries in the Far East. An analysis conducted by a group of researchers who operate in Italian universities, which also includes the University of Bologna, shows that one of the most frequently used reasons to justify the reshoring of production is the need to reinforce the positioning of a firm’s supply through a statement of its origin: this aspect is not negligible, especially in sectors where the made in Italy label constitutes a considerable element of value. There is also the need to guarantee a better quality of service, which is not always guaranteed by firms located in the Far East. Another reason which is driving firms towards backshoring is that the cost differentials compared to domestic production are now no longer applicable. The reason for this is the rapid rise in the cost of labor in those areas where production was localized and the rise in logistics expenses, especially regarding transportation and storage, determined by the distance from the actual production sites.
If we were to repeat this research today, following the world-wide spread of Covid-19, the data would show another major cause for rethinking the global procurement model: the risks inherent to a long and distant supply chain. The emergency we are currently experiencing has opened up a deglobalization process, emphasizing how important it is to regain direct control of activities to guarantee production continuity. Indeed, there are many firms that in the early months of 2020 were forced to resort to a recovery plan to deal with the manufacturing shock caused by the shortage of materials originating from factories located in those areas which were first affected by the virus. Whereas in some cases keeping these businesses up and running was possible in a relatively short space of time and at affordable extra costs, in others this task led to significant crises, which we presume will only be reabsorbed in the long run.
The global pandemic has therefore made it even more evident that offshoring operations expose firms to risks rather than providing hypothetical savings on production. While there is obviously no use railing against the past, we can make the most of the emergency to prepare for the future and put together supply chain management systems that are more beneficial in the long term and especially more resilient.
However, we need fast and efficient answers in the short term too. It is therefore necessary to activate every level of the operating chain: starting with the end customer and with the distribution channel, the sales forecasts need to be reviewed in order to identify the priorities and the real needs more accurately. This is the only way we can plan the possible actions to re-balance sales, together with our dealers. Another essential aspect is liaising with suppliers to analyze the production capacity available and start searches to identify new sources, in the areas less affected by the emergency, capable of supplementing and covering the requirements. The flow of materials must also be made transparent to show up any accidental stocks which are usually stockpiled as precautionary buffers between the various stages, both internal and external, of the supply chain. In an emergency situation such as the one we are currently experiencing, it may prove useful to use materials and components which were originally intended for the after-sales market in order to continue production activities, and then rebuild stocks as soon as possible to guarantee normal management security.
Both in the current circumstances, and in the future, we at the Varvel Group aim to be construed as the ideal partners for businesses that want to be able to count on a reliable supply chain and that are driven by product control and quality requirements. Our impressive know-how and 100% Italian production are key features of our dependability. No problem is too big, and we have tackled each and every issue professionally. Our firm has an uncommon tradition and story; we therefore know how to tackle the unexpected quickly and responsibly, in order to guarantee our customers get what they need in order to continue with their production activities.