TRL3709/001/3/2025

Logistics Strategy

TRL3709
Semester 1

Department of Applied Management

IMPORTANT INFORMATION
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 Assignment 3- long questions

Read the case study below and answer the questions that follow.
Use the study guide and the prescribed book for guidance in answering the questions. A detailed discussion is
required, link theory with the case study when answering the questions below.

Shifting Supply Chain Winds Favour Regionalism, Restructuring

The world economy is undergoing significant changes as we shift from a global approach to one focused
on regional and national production. Demographic, geographic and political factors are reshaping our world
and driving the change. Going forward, companies will need to continue to navigate supply chain
disruptions, China risk and concerns about capital outlays in a rising interest-rate environment.

The new paradigm will not be defined by the globalization that dominated the last half-century. While this
transition presents challenges, it also opens up exciting new opportunities for those who are willing to
adapt. 2023 is an opportunity for companies to work together to restructure and regionalize their
manufacturing value chains.China has reopened and will continue to deal with the impacts of COVID for
many years. Official Chinese policy is that Taiwan is part of China, and therefore any action by China to
bring Taiwan closer is an internal matter that other nations should refrain from attempting to influence.
While the rhetoric for breaking ties with China is strong, there are complicating factors. The U.S. trade
deficit with China is again growing. Consumers want the low-cost products they can get through the
Chinese manufacturing value chain. Meanwhile, higher interest rates and fear of a recession are driving
caution among manufacturers around investment in regional production capacity outside of China.
Looking deep into supply chains to understand what components originate in China is now more critical
than ever. Executives and boards that ignore the post-China value chain plan are putting their companies'
futures at risk with a clear, quantifiable, and mitigatable situation.
Regional Industrial Labor and skills shortage
Companies are looking to low-cost manufacturing zones in North America and Europe in an effort to move
higher-value production to the region. Much of the shift to date has been items where a logistics penalty
supported a more rapid move. Challenges exist for smaller commodity components with low margins, which
are currently manufactured in China. These parts, mostly taken for granted, will be those that likely stress
supply chains in the near future.
Purchasing and supply-chain teams need to unite in their efforts to regionalize a value chain. Lobbying for
government support to bring low-margin and -cost components will be necessary. Without subsidies,
regionalization may not happen for these components, connectors, small handwork parts, etc. That would
constitute a national security risk for the United States and European Union.
The West will pay the price if war breaks out with broader Europe. Eastern Europe, which has historically
been the focus of low-cost labour for Germany and the wider European manufacturing base, is now seen
as higher-risk as the conflict in Ukraine continues to escalate. Manufacturers in the region continue to re-
evaluate sourcing decisions and need to have executable contingency plans with trigger events defined to
rapidly relocate production.
Mexico continues to shine as the heart of the North American low-cost manufacturing engine. While the
labor market remains tight in Mexico, universities continue to produce a record number of engineering
graduates. This white-collar workforce has given the country a robust position as the center for
regionalization in North America. Major cities including Mexico City, Monterey, Querétaro and Guadalajara
are all experiencing direct labour constraints, but there are many areas with both facilities and labor that
can be leveraged for rapid relocation.
There will be an increasing push to bring manufacturing back to the regions as tensions with China grow.
If a conflict with China occurs, then it will become a crisis-driven imperative. Companies that move now will
have a significant competitive advantage as the current globalization paradigm evolves.
Shifts in the Semiconductor Industry
The Biden administration has taken steps to engage allies and block further development of a Chinese
semiconductor industry. These efforts have made it illegal for Americans to work with Chinese
semiconductor companies. The Netherlands and other key allies in the value chain are supporting the
Biden administration in this effort. This will open a short window to take advantage of capacity to expand
and build more fabrication capacity in the West, but government subsidies, in the U.S. and elsewhere, are
needed to make it happen.
The semiconductor lifecycle has historically been cyclical, and this time is no exception. COVID drove a
rapid expansion and refresh in consumer electronics, pulling this cycle ahead. Automotive companies
suffered, but availability is temporarily increasing. However, with the shift to electric and autonomous
vehicles requiring a growing number of semiconductors per vehicle, we will see constraints re-emerge. The
market will again tighten in 2024, and both automotive manufacturers and consumer electronic companies
need to be prepared.
The Ongoing War in Ukraine
The Russian war in Ukraine continues to be a serious humanitarian crisis, and the ongoing escalation
increases the risk of a land war in Europe. While we’ve not seen predictions that this will be equivalent to
the world wars of the previous century, there continue to be disruptions across Europe. Neon gas supplies
remain tight, impacting semiconductor production, and both food and energy prices will stay high because
of the Ukraine conflict.
Companies should be evaluating a shift to military and government production if the Ukraine war breaks
out to a larger conflict in Europe. Understanding what products your team could manufacture and having
a contingency plan in place is a good risk mitigation strategy. The global manufacturing value chain will
continue to transform as geopolitical tensions re-emerge and dominate the risk landscape. Based on the
extent of the risks, there is a short window for companies to re-engineer value chains for risk mitigation
and regional optimization.
Source: https://www.industryweek.com/supplychain/planningforecasting/article/21260473/shifting-supply-
chain-winds-favor-regionalism-restructuring (Accessed 01 April 2023)
 TRL3709/001/3/2025

QUESTIONS
1.1 [7 marks]
Identify at least three macroeconomic factors from the case study and
discuss their impact on the restructuring of supply chains.
3 marks for theory, 4 marks for application.

1.2 [7 marks]
Having read the above case study, discuss how global firms may use
competitive and political factors to adapt to shifting supply chains.
3 marks for theory, 4 marks for application.

1.3 Identify and discuss the appropriate forecasting technique that can be [5 marks]
used during times of uncertainty. Give a case study example
2 marks for theory, 3marks for application.

1.4 Explain how firms can manage and mitigate risks in their global supply [7 marks]
chain.
3 marks for theory, 4 marks for application.

1.5 There are dimensions to consider when evaluating total cost from [7 marks]
offshoring.
Identify and discuss three performance dimensions evident from the case
study and their significant impact on the restructuring of supply chains.

3 marks for theory, 4 marks for application.

Regards
Mr SV Baloyi
Lecturer for TRL3709
DEPARTMENT OF APPLIED MANAGEMENT