VIEWPOINT

2024

T I M E F O R A S T R AT E G I C
M A N U FA C T U R I N G
FOOTPRINTREASSESSMENT
Redefining supply chains for risk,
resilience & responsibility

AUTHORSAlexandra Nybonn
Martin Byström

Global supply chains are under scrutiny due
to material shortages, rising costs, and ethicaldemands. Adapting to a changing world is crucial
for maintaining robust and responsive supplychains. This Viewpoint highlights the urgency formanufacturing firms to reassess their locations,prioritizing not just cost efficiency but also
resilience, adaptability, and responsibility.

Niklas Brundin

ARTHUR D. LITTLE

VIEWPOINT

THE TIME IS NOW

Disruptions from pandemic peaks have eased,A series of recent challenges — including

levels than pre-pandemic. Significantly, this led

material shortages, rising energy costs, newto a 128% increase in mentions of “reshoring” inenvironmental regulations, geopoliticalS&P 500 earnings calls in early 2023 comparedtensions, and intensifying protectionism —to the same quarter in 2022, according to analysis

have necessitated a reevaluation of the current

from Bank of America.

global supply chain model. Evolving consumer
demands for transparency around product origin,environmental impact, and labor practices have
exposed vulnerabilities in extensive supply
networks and impacted profitability and recovery
capabilities. Consequently, manufacturinglocation decisions are now more critical than everand extend beyond cost savings and efficiency
to encompass a company’s adaptability andbut executives still report significantly higher

This Viewpoint highlights three urgent reasons toreassess manufacturing footprints (see Figure 1):
1. Understand actual cost of a globalizednetwork.
2. Ensure supply chain resilience and risk
mitigation.
3. Adapt to customer sentiment.

responsibility in a complex global market. In theMoreover, emerging regulations are contributing

face of this upheaval, manufacturing firms must

to existing pressure on global supply chains:reconsider their geographic footprint. In this- The US Inflation Reduction Act (IRA) andViewpoint, we present a strategic framework
to guide a thorough reevaluation, focusing
on how manufacturing location decisions
affect a company’s cost efficiency, resilience,adaptability, and ethical integrity.

Infrastructure Investment and Jobs Act (IIJA)
are catalyzing US domestic manufacturing,
especially in the clean energy and electricvehicle (EV) sectors. Both offer tax credits
and grants, with the IRA’s Section 45X

The post-pandemic recovery and ongoingproviding tradable tax credits to offset thegeopolitical disruptions have underscored thehigher cost of US-made components. These

need for a critical reassessment of supply chains.

incentives led to a surge in US manufacturing

In 2024, key challenges include the weakest

investments, with new domestic EV andglobal economic growth in decades, risingbattery factory announcements reaching US

inflation and energy costs, conflicts in Europe$210 billion by early 2023, surpassing China.

and the Middle East, tensions between the US

These programs aim to balance higher US

and China, and global banking instabilities. And,

production costs with financial incentives toas companies aspire to lessen their environmental

encourage reshoring in strategic industries.

impact and achieve net zero, they face theadditional
task of addressing
the emissionsFigure 1. Threereasons
to reassess
manufacturing footprints
generated by long supply chains.

Figure 1. Three reasons to reassess manufacturing footprints

Understand actual costof a globalized network

Ensure resilience & mitigate risk

Adapt to customer sentiment

Source: Arthur D. Little

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2ARTHUR D. LITTLE

VIEWPOINT- To protect its national security, China

experienced during the pandemic resulted inannounced a new export license policy forcosts averaging 6%-10% of annual revenues

graphite in October 2023. China controls 67%

and did not account for additional expensesof the global supply of graphite and refines

incurred to repair brand reputation and respondover 90% for EV battery anodes, pushingto customer complaints. As a result, numerous

automakers like Tesla and Mercedes to seek

companies have strategically opted to regionalize

alternative sources.

and simplify their supply chains to mitigate the- The EU’s Carbon Border Adjustment

impact of future disruptions.

Mechanism (CBAM) is a tariff that requires

Reducing labor costs has traditionally been thecertain industries to record emissions forprimary motivation for outsourcing. However, theimported goods. Its first phase took effectadvantages of sourcing from low-cost countries

in October 2023; carbon permits will be

are diminishing for two reasons:required by January 2026. This legislation is

1. Rising wages in developing countries.

prompting non-EU high-emission producers

In 2022, real wages in China increased by

to seek domestic production and eco-friendly

2.6 times compared to their 2008 levels,suppliers.

whereas in the US, wages have increased byapproximately 1.1 times during the same period

Understanding actual cost(see Figure 2).

of globalized networks

2. Opportunities for automation. These are

Reevaluating the total cost of ownership foraddressing and alleviating one of the key

global supply chains requires a comprehensive

challenges of nearshoring — labor availability.

analysis that goes beyond direct expenses toAt the same time, the growing shift toward

include complex indirect costs and sourcing

production electrification is boosting thedetails. Complexity comes at a price; saving

demand for accessible, affordable, andin one domain, such as labor costs, can leadsustainable energy, which in turn influences

to higher expenses in another. In fact, a 2021

decisions on manufacturing locations. These

report from the Economist Intelligence Unit

factors are driven by business necessities

and further supported by global policies.
Figure 2. Average real wage index development(EIU) revealed that supply chain disruptions

Figure 2. Average real wage index development
260
240
220
200
180
160
140
120
10080

2008

2009

2010

2011

2012

2013
China

2014

2015

India

2016

2017

Germany2018

2019

2020

2021

2022

USSource: Arthur D. Little, International Labour Organization (ILO)

TIME FOR A STRATEGIC MANUFACTURING FOOTPRINT REASSESSMENT

3ARTHUR D. LITTLE

VIEWPOINT

Ensuring supply chain resilience& risk mitigation- Intel. The company invested $20 billion
to build two new chip factories in

The COVID-19 pandemic, the Suez Canalblockage, and the semiconductor chip shortage
revealed the global supply chain’s fragility. These
disruptions truly showed the interconnectivity ofChandler, Arizona, USA. The state’s largest
private investment aims at boosting USsemiconductor production and is projected
to create over 3,000 jobs by the end of 2024.

global trade: when products get stuck, revenue

By decreasing geographical distances andis lost, customer relationships are damaged,

complexities in the supply chain, nearshoring

and resolution costs increase. It is a lose-lose

can significantly enhance operational resiliencesituation.

and mitigate risks. It facilitates quicker response

The EIU survey also highlighted a significant shift
in post-pandemic executive priorities, with 60%
emphasizing resilience and risk mitigation overspeed and efficiency. This trend has persisted,
as evidenced by a 2023 UBS survey, where 70%
of 1,600 US executives indicated plans to relocate
their supply chains closer to customers to achieve
greater risk mitigation (see Figure 3).
Recent industry announcements provide concrete
examples of this trend:- Novo Nordisk. In 2023, the Denmark-based
company began allocating $5.9 billion (DKK42 billion) to enhance manufacturing byexpanding its Kalundborg facilities andplanning a new site in Funen for chronic
disease products.

- Mini Cooper. Production of the first Mini

times, improves supply chain visibility, andstrengthens control over production processes
while reducing inventory and working capital.
This approach not only supports faster adaptation
to market changes but also fosters stronger,
more reliable customer relationships — a crucial
advantage in today’s volatile global market.
Adapting to customer sentiment
Today’s consumers are particularly focusedon ethical and sustainable practices and pushcompanies to move beyond efficiency to deliver
experiences aligned with their values. Gen Z,
poised to become the largest consumer groupby 2030, is at the forefront of this shift. A 2023
report from the Swedish Trade Federation foundthat 70% of Gen Z consumers avoid brands that
do not match their ethical principles, and 73% are

Cooper made entirely in Germany began inloyal to brands that do. Authenticity matters toLeipzig in November 2023, marking a new

this demographic, which is wary of greenwashing.

manufacturing milestone for the BMW GroupThe shift toward supporting companies based on

3. Executive supply
chain priorities
brand.

their ethical choices extends beyond Gen Z, asconcerns about global supply chain issues — likeFigure 3. Executive supply chain priorities

60%70%

60% of executives prioritize
resilience & risk mitigation
over speed & efficiency

70% of executives plan to movesupply chains closer tocustomers to mitigate risk

higher emissions and labor concerns — are driving
a turn toward domestically produced goods.

Source: Arthur D. Little, EIU, UBS

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VIEWPOINT

The “Made in America Report” from Morning
Consult Pro in June 2023 showed that 65% of USconsumers prefer domestic products, with 48%
ready to pay more, reflecting rising sentimentand environmental, social, and governance(ESG) considerations (see Figure 4). This evolving
landscape requires businesses to rethink their
supply chains to balance cost and efficiency withCONCERNS ABOUT
G L O B A L S U P P LY C H A I NISSUES ARE DRIVINGA T U R N TOWA R D
D O M E S T I C A L LY
PRODUCED GOODS

ethical, sustainable practices and assured quality.

The shifting sands of China’s economy

GE T TING S TAR TED

China’s economy faces multiple challenges:

The process of reviewing the manufacturing

declining consumer prices, reduced tradefootprint is complex and multifaceted andwith and investment from the US, and arequires careful planning, deep analysis, andstruggling property sector. In fact, foreign

strategic thinking. Figure 5 illustrates the main

direct investment in China decreased to its

initial steps to undertaking this review:

lowest level in 30 years at the end of 2023,

1. Map current state. This step involves

falling 80% from 2022 levels. Moreover,
China’s Consumer Confidence Index has
dipped into pessimistic territory over thelast two years. In response, Chinese firms
like BYD and PTL Group are relocatingproduction overseas to better connect withcustomers and reduce geopolitical risks.
BYD is expanding into Europe with an EV
manufacturing hub and setting a goal of
800,000 EV sales by 2030. Meanwhile,
PTL is opening an anode plant in Sweden,
tapping into the country’s green energy
resources and aiming to become a major
supplier to Northvolt.

e 4. Consumer interest in domestically produceducts, June 2023

analyzing existing facilities, locations, andoperations and is essential to reevaluating
manufacturing footprints. Key aspects toexamine include cost structure, production
capacity, outgoing logistics, inventory andlead times, competitive landscape, and growth
opportunities to pinpoint improvement areas.
2. Define future ambitions. Aligning thesupply chain with the company’s vision,values, brand, and reputation is crucial. This
includes adhering to sustainability policies
and meeting ESG demands. Furthermore,
efficiency in the supply chain results inresourceful operations, minimizing costs while
maximizing speed and emphasizing proximity
to demand. As supply chains become more

Figure 4. Consumer interest in domestically

local, improving or maintaining productivity

produced products, June 2023

levels is vital to remain competitive.

65%48%

65% of US consumers preferdomestic products …

… and 48% of US consumers areready to pay more for these products

Source: Arthur D. Little, Morning Consult Pro

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VIEWPOINTA S S U P P LY C H A I N S
BECOME MORELOCAL , IMPROVINGO R M A I N TA I N I N GPRODUCTIVIT Y LEVELSI S V I TA L T O R E M A I N
COMPETITIVE

3. Plan for gradual improvement.
Ambidexterity is important for long-term
strategic growth and optimization and canbe achieved by identifying quick wins for
immediate improvements and concurrently
developing future roadmaps. This balanced
approach ensures immediate positive impacts
and sustained progress toward overarchinggoals.
4. Develop business case and roadmap.
This final stage confirms that the updated
manufacturing footprint aligns with thecompany’s overall business objectives. It
includes integrating strategic alignment, risk
management, sustainability, and efficiency.
Performing a cost-benefit analysis, especially in
scenarios like reshoring, is critical for balancing
immediate benefits with long-term value, while
also keeping in step with market dynamics andmeeting regulatory requirements.

Figure 5. Steps to reviewing the manufacturing footprint
Figure 5. Steps to reviewing the manufacturing footprint

43
2
1

Develop businesscase & roadmap
Plan for gradualimprovement

Define futureambitions
Map current state

Source: Arthur D. LittleTIME FOR A STRATEGIC MANUFACTURING FOOTPRINT REASSESSMENTSource: Arthur D. Little6ARTHUR D. LITTLE

VIEWPOINTCONCLUSIONT H E T R I F E C TA P U S H
F O R S U P P LY C H A I N S

GLOBAL BUSINESSES ARE GRAPPLINGWITH RISKS AND DISRUPTIONS IN THEIRC O M P L E X M A N U FA C T U R I N G N E T W O R K S

In the wake of the pandemic, global businesses are grapplingwith risks and disruptions in their complex manufacturingnetworks, which have been intensified by current geopoliticalconditions. Three factors have escalated the need to strengthen
the resilience and future readiness of supply chains:
1

Awareness of high costs and vulnerabilities of globalized
networks in the post-pandemic era

2

The pressing need to push toward domestic and regional
production to enhance control and diminish risks

3Consumer demand for transparency and ethical practices,
fostered by a preference for domestically produced,
sustainable goods

To achieve a more adaptable, ethical, and efficient supply chain,
we advise executives to reassess their manufacturing strategiesand focus on cost, resilience, and consumer trends.

TIME FOR A STRATEGIC MANUFACTURING FOOTPRINT REASSESSMENT

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