Glocal: The word means thinking globally while acting locally. In fact, many companies have been busy restructuring their supply chains from global to regional or local for a few years now. But what problems are they trying to solve? Are they doing "glocal" correctly?

Last fall, I had an opportunity to participate in the 2023 Willamette Valley pinot noir harvest in Oregon, and I experienced first-hand supply chain disruptions at a local winery.

The plan for the day’s harvest was simple: start picking at 9 a.m. and complete production by 3 p.m., with all the grapes safely in the barrels. However, as the morning progressed, challenges began to arise. The pickers didn't show up until 9:30, and their output wasn't as fast as expected, creating a bottleneck in the sorting process. We experienced multiple line stoppages due to material shortages.

In the afternoon, grapes were being picked from plots further away, extending transportation lead times. To make matters worse, the vehicle transporting the grapes from the field to the facility broke down, and the de-stemmer experienced a minor malfunction. Material shortages and line stoppages continued to plague our operations.

Then, around 3 p.m., rain began falling – a "natural disaster" we hadn't planned for. The pickers, exhausted from the demanding weather, decided to call it quits despite agreeing previously to work overtime. 

 This picture illustrates the flow of wine “production.” All four major elements of “manufacturing” occurred within a radius of 30 miles:

• Labor: Local workers.
• Materials: Grapes picked on site in the vineyard.
• Equipment: All on site.
• Facility: Owned winery.

Relatively speaking, this wine “production” has a very simple supply chain, with a bill of materials containing just one direct material. It’s harder to get any more local than that.  

Back at the winery, the owner and winemaker stepped in, determined to finish the picking. Yet the facility — the only element that hadn’t experienced disruption — soon ran out of space to store the work-in-process (WIP) inventory — the grapes picked and waiting to be sorted.

At the end, the plan didn't get completed. The winery suffered delayed production, overtime costs, and degraded grape quality due to the rain and an inability to process the grapes within the same day. Everything that could go wrong in a global supply chain went wrong in this local supply chain.

Back to the global trend of deglobalization and localization: How are companies faring? According to 2023 research by Boston Consulting Group, “Only 55% of North American executives in our survey said that their production moves had met their objectives.” So why are so many companies following this "glocal" trend? How can supply chain leaders improve their success rate?

To orchestrate a high-performing supply chain, whether local or global, it still requires a balancing act with a systematic problem-solving mindset.

When a supply chain is more global, it becomes longer, bringing with it more variables and risks, typically in terms of logistical disruptions like the recent Suez Canal obstruction, sky-high shipping container rates, Red Sea crisis, and Port of Baltimore bridge disaster. At global scale, it becomes a lot more complicated than managing a local supplier operating within a radius of 30 miles. No wonder so many companies are shifting a large portion or, in some cases, nearly all of their supply chains, closer to their home base.

General Electric’s Example

In 2016, General Electric decided to move production of its refrigerators from Mexico and China back to the U.S., investing $1 billion to revamp its Louisville, Kentucky manufacturing facility. The idea was to create a more localized, cost-efficient supply chain. Yet issues arose around coordinating the complex network of U.S.-based parts suppliers, meeting new workforce training needs, and redesigning production lines for the domestic factory. According to reporting by Reuters, by 2017 GE was losing as much as $1 million per day.

GE had to step back and re-evaluate its localization strategy through a more systematic lens. Eventually the company made several adjustments to its approach, including selectively outsourcing certain components, developing new supply chain modeling, and improving supplier communication.

By 2019, after applying this more balanced problem-solving approach, GE reported that its reborn manufacturing line was profitable again.

Whether it’s a small winery, multinational corporation or nearly half of the North American companies in the BCG survey, the lesson is clear: A local supply chain has its own problems, and sometimes can be even more challenging to manage. To create the right balance between global and local, we need to apply a systematic problem-solving mindset.

What Went Wrong?

Supply chain leaders need to first understand why they went global in the first place, then ask what problems they are trying to solve now.

Typical benefits of a global supply chain include:

• Access to specialized materials that are not available locally or economically.
• Cost savings.
• Access to higher quality materials and equipment.
• Reduced lead times. This may sound counterintuitive, but lead time, besides transportation time, includes manufacturing time which is driven by production capacity and available labor.
• Mitigated local risks, such as labor shortage, natural disasters, political instability, or economic downturns.
• Diversification of the supply chain, and reduced risk exposure to a single country.

All of the above benefits, of course come with costs and inherited risks. That's why supply chain leaders need to be conscious of maintaining a balancing act, with a systematic problem-solving mindset: clarify the problems to be solved, understand the root causes, identify alternatives, and analyze the pros and cons before deciding on the strategy moving forward.

If long lead time, for example, is the problem, supply chain leaders need to identify the root cause before developing alternatives. If the cause lies in transportation, a local supply chain could be a reasonable alternative. But if the problem is excess production time or raw material availability, moving the supply chain closer to home might not be the best option to yield the largest return.

After analyzing all the alternatives and weighing the benefits versus the risks, supply chain leaders are ready to make a decision. The solution may very well be a more regional or local supply chain, but be aware of the risks that come with it, and have a plan in place to mitigate the negative consequences.

For example, manufacturing companies are already seeing faster-than-expected wage inflation in Mexico, and production capacities are being tapped out. According to a 2023 working paper from Harvard Business School, there are signs indicating that prices of imports from Mexico are on the rise.

Being global, local or hybrid are options for accomplishing a supply chain objective, not the purpose itself. A systematic problem-solving approach is the proper mindset for making informed decisions, while maintaining flexibility to pivot as conditions evolve.

Ji Li is supply chain advisor with J&J Investment and Consulting.