Is Localization the Answer to OEM Supply Chain Bottlenecks?
Updated: Aug 5, 2022
The global supply chain can’t seem to catch a break. The US-China trade war, the COVID-19 crisis, container shortages, and skyrocketing oil prices in the wake of the Russia-Ukraine conflict have made it extremely challenging to import foreign products to the U.S. in a timely and cost-effective manner.
Consider these statistics:
Only about 11% of shipments from Asia to North America arrived on time in May 2022.
The price to ship a 40’ high cube container from China to the U.S. currently costs between $15,000 and $18,000—two or three times as much as it did pre-pandemic.
The price of very low sulfur fuel oil (VLSFO), which powers most commercial ships, hit $1,042 per ton in June 2022—a new record.
Ongoing pandemic disruptions and geo-political tensions have created a risky situation for North American original equipment manufacturers (OEMs) that typically source parts from Asian and European countries. Reliance on offshore supply have led to high prices, high lead times, orders left unfulfilled, and profits dipping.
Small and medium-sized businesses have been hit the worst, as many ocean freight carriers have broken pricing contracts with shippers to prioritize larger, more lucrative buyers like Amazon or Walmart.
To protect against uncertainty, many are localizing or reshoring their supply chains.
What is Supply Chain Localization?
Supply chain localization refers to manufacturing and shipping goods locally, thereby reducing the time needed for materials to reach their destination. Sometimes referred to as reshoring, this strategy helps build supply chain resiliency in the face of global disruptions and geo-political turmoil. Reducing shipping miles also lowers carbon emissions, making it a greener alternative.
Supply chain localization in the U.S. has several benefits:
A shorter supply chain means less chance of disruption.
Product quality is often better from domestic suppliers.
It’s better for the environment.
It boosts job creation.
Some U.S. municipalities offer tax-abatements, grants, and other incentives to encourage reshoring.
The localization trend is not new, but supply chain turbulence we’ve seen over the past five years has accelerated the need for more manufacturers to hop on board.
Bringing the Fastener Industry Home
The fastener industry is one that is ripe for reshoring for two reasons. First, fasteners are heavy, so freight costs are high even when supply chains are running smoothly. Add any major disruptions, and shipping prices can surge through the roof. Second, fasteners often require design changes or customizations. That adds complexity and requires more frequent touchpoints with suppliers to ensure quality, and a localized supply chain makes communication easier.
We’ll likely see an increasing number of U.S. OEMs sourcing their fasteners from North American suppliers. Recent data supports that trend:
In a 2020 survey by the Reshoring Institute, 70% of American respondents claimed they prefer U.S. made products and were willing to pay a premium for them.
Manufacturing employment trended upward in May 2022 with job gains of 7,000+ for fabricated metal products.
Chinese wages have risen 10.5% annually between 2011 and 2021—more than twice as fast as wages in the U.S.
Even if an OEM doesn’t fully localize its supply chain, it’s smart business to develop relationships with some domestic suppliers to insulate against unexpected high costs.
For Want of a Cheap Screw, the Production Line Shut Down
Traditionally, product price has been the sole factor in choosing a fastener supplier. But chasing the lowest price for parts doesn’t always translate to the lowest total cost. OEMs need to also evaluate how unreliable transportation or poor quality affects their bottom line.
A quote by Benjamin Franklin comes to mind.
“For the want of a nail the shoe was lost,
For the want of a shoe the horse was lost,
For the want of a horse the rider was lost,
For the want of a rider the battle was lost,
For the want of a battle the kingdom was lost,
And all for the want of a horseshoe-nail.”
― Benjamin Franklin
A missing or faulty fastener shipment can have costly ramifications, sometimes leading to production lines being shut down. According to one report, unplanned downtime can cost industrial companies a staggering $187,500 per hour. It’s not just downtime that is costly; transportation failures are also expensive.
For example, if container shipments are repeatedly delayed, a manufacturer may find themselves scrambling last minute and paying a premium to get the products they need delivered on time. Fasteners manufactured overseas typically cost less at face value, but it’s important to examine potential risk of transportation failures or unexpected price increases when looking at total cost.
Localizing Before It’s Too Late
As more OEMs localize their supply chains, domestic suppliers will reach capacity and be forced to turn away new business. Forward-thinking companies are planning ahead and building localized relationships now before demand exceeds availability.
Blue Ribbon Fastener can help. As a full-service fastener distributor, we already have these relationships in place. In addition to import manufacturing capabilities, we provide clients with access to more than 100 domestic manufacturers to offer agility and peace of mind through supply chain disruptions.
Looking to diversify suppliers, reduce dependence on China and other countries, and hedge against future supply chain chaos? Contact Blue Ribbon Fastener to learn more.