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How to Mitigate Supply Chain Risks in Factory Relocation

December 8, 2023

 by David Collins III

the interior of a factory with workers packing up boxes within the factory supply chain

In the ever-evolving landscape of manufacturing, the decision to reshore or offshore a factory is a strategic move that necessitates meticulous planning to safeguard supply chains. Factory relocation, while promising, often introduces complexities that can disrupt the flow of goods and services. However, the key lies in effectively mitigating the supply chain risks during this transition through supply chain management. Here are ten recommended activities to assist with supply chain risk mitigation.

1. Conduct a Comprehensive Risk Assessment

The first step in mitigating risk in a supply chain during factory relocation is to conduct a thorough risk assessment.  Identify potential disruptions or vulnerabilities that could impact the supply chain. Factors like transportation logistics, regulatory changes, supplier reliability, and geopolitical considerations should be carefully evaluated. An honest and a clear analysis of worse-case scenarios is required here. A competent risk assessment would be enough to prevent factories from committing the faults Nike committed while working in Myanmar


2. Develop Contingency Plans

With insights from thorough risk assessments, developing detailed contingency plans to address potential disruptions is crucial. These plans should cover various scenarios, ensuring the factory's resilience when facing unexpected challenges. A key strategy is diversifying supply chains, which involves engaging multiple suppliers to safeguard against the risk of supply shortages.


3. Diversifying Supplier Base

Reducing reliance on a single supplier mitigates the risk of supply chain disruptions. Consider diversifying your supplier base, sourcing materials or components from multiple suppliers from different regions, or exploring local sourcing options in the new location. This decentralization ensures a more resilient supply chain. If one supplier faces challenges, you will still have a fallback option to rely on. 

It is a good idea to diversify in general, even if you have no interest in relocating your factory. Buying from multiple suppliers allows you to change orders depending on quality, cost, and delivery or to hedge for unforeseen challenges, whether due to natural or man-made disasters.


4. Collaborate Closely with Stakeholders

When mitigating risks in supply chains during factory relocation, the importance of open communication and collaboration with stakeholders cannot be overstated. Engaging early with suppliers, logistics partners, and key stakeholders is crucial. This early engagement fosters trust and ensures effective coordination throughout the relocation process. Regular updates and meetings are essential to keep all parties aligned and informed.

A joint assessment is critical to developing effective risk mitigation strategies, allowing for a smoother transition. Transparent communication, supported by digital tools, is vital for real-time information sharing. Additionally, establishing feedback channels for stakeholder insights and concerns helps address issues promptly. 


5. Invest in Technology and Data Analytics

Leveraging technology and data analytics is vital for improving supply chain visibility and responsiveness, particularly during factory relocation. Effective implementation of systems to track inventory, monitor shipments, and forecast demand is essential for managing disruptions efficiently.

Despite the availability of advanced tools, many companies need help in utilizing them effectively. Overcoming this involves focusing on key areas: ensuring employee proficiency in data analytics through targeted training, integrating disparate data systems for streamlined information flow, and conducting regular audits to align these tools with the business's evolving needs.

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6. Evaluate Regulatory Compliance

Relocating a factory involves adapting to new regulatory landscapes, which can vary significantly from one location to another. To ensure a smooth transition, it's crucial to thoroughly research and understand the specific regulatory requirements of the new location well in advance. This includes compliance with local labor laws, environmental standards, import/export restrictions, and tax obligations.

Engagement with local authorities and possibly hiring legal or regulatory experts can be beneficial. They can provide insights into local regulations and help navigate complex legal frameworks within the supply chain environment. Regular training for your team on these regulations is also essential to ensure timely compliance. Adherence to local rules can not only halt operations but also lead to legal complications and disrupt the supply chain.


7. Implement Phased Transition Strategies

A phased approach to factory relocation can significantly enhance risk management. Companies can better control and mitigate risks by breaking down the relocation process into manageable stages. 

From setting up initial plans to maintaining and improving processes, factories can gain a holistic view of all the supply chain components in the new location, ensuring they meet operational requirements and standards. It also allows identifying and addressing challenges in a controlled environment.


8. Invest in Employee Training

A well-trained workforce is essential in mitigating risk in the supply chain during factory relocation. Comprehensive training on new processes, technology, and logistics is essential to prepare employees for the transition. This preparation should address the elements critical to maintaining supply chain integrity, such as inventory management, order processing, and coordination with suppliers and logistics partners.

By empowering employees with knowledge and skills pertinent to these areas, they become more adept at handling the intricacies of the relocated supply chain. This capability is vital in promptly identifying and mitigating potential risks, ensuring a seamless transition. Effectively trained employees are better equipped to adapt to new systems and processes, which is critical to minimizing disruptions in the supply chain during the relocation.


9. Conduct Simulations and Testing

Before initiating the relocation, conducting simulations and testing of the proposed new supply chain setup is beneficial. Through simulations, you can anticipate how the relocated supply chain will function in various scenarios, including peak demand periods, supply interruptions, and logistic challenges.

Testing allows for identifying potential bottlenecks, vulnerabilities, or inefficiencies in the supply chain. Addressing these issues before the move can prevent costly disruptions and operational delays once the relocation is underway. This approach ensures a smoother transition and maintains consistent service levels and operational reliability post-relocation.


10. Monitor and Adapt Continuously

Post-relocation, closely monitoring the supply chain is crucial to identify and swiftly respond to unforeseen challenges. Continuous assessment of its performance allows for quick adjustments to optimize efficiency and resilience. This includes evaluating delivery times, inventory levels, and supplier reliability. Adapting strategies, reviewing supplier contracts, or incorporating new technologies as needed ensures the supply chain's long-term robustness and smooth operation in its new environment.


The Key Strategies to Mitigate Risks in Supply Chains in Factory Relocation

Mitigating risks in supply chains during factory relocation demands a proactive and multifaceted approach. Mitigating risks in your supply chain will also positively influence your long-term EBITDA.  With the ten listed activities, manufacturers can navigate the complexities of supply chain transitions effectively. Embracing these strategies ensures a smoother relocation process and positions the supply chain for resilience and success in the new manufacturing landscape.

The process is not easy and may take you in surprising directions, yet planning will always leave you more prepared and better able to adapt.

Want to learn more strategies on mitigating supply chain risks in factory relocation? Contact us to learn more about how we can help you.

plant relocation

Topics: Supply Chain Management, Plant Relocation

David Collins III

David Collins III

David was a Senior Strategy Consultant for Deloitte, served in Iraq as a Special Operations Civil Affairs soldier, and as a Governance Advisor to the Afghan Government with the Department of State. At CMC, David advises clients on strategy and investments.

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