Without a crystal ball to predict the future, many businesses are now looking to mitigate potential threats by regionalizing their operations to provide flexibility across multiple locations around the world. 

This approach is more costly, but it does spread the risk – as companies will not have all their eggs in one basket. It also gives organizations the option to ramp up and down production levels in the medium term at different locations, depending on demand, business costs, and access to raw materials. Ultimately, working this way gives companies options. 

This flexibility is only useful, however, if businesses are also able to anticipate situations, predict the likely outcomes and react in a timely manner. Enhanced levels of visibility across the value chain are, therefore, required too. 

Organizations that understand and embrace this need are already building digital twins of their production and distribution network. This allows them to monitor and simulate global operations in nearly real time, providing management teams with the insight they need to align demand and supply, spot the events that could cause a crisis and identify the root cause of those problems.

An ability to access information covering an array of parameters – such as direct and indirect production costs, the state of the supply portfolio and the risk profile across various locations – also allows organizations to run simulations that can forecast the implications of any change in circumstances.

By modelling different scenarios – such as what happens if a component is discontinued, new technology is deployed within a specific location or if production is switched to another site – management teams can analyze the end-to-end impact on the entire value chain.

This removes a lot of the guesswork we’ve seen businesses carrying out in recent years. For example, we supported a company that needed to decide whether to stop production at one of its locations, keep producing at a loss or relocate. The company needed to consider all the upstream supply and risk factors as well as numerous downstream considerations. These included increasing transport, production and energy costs, and an expected evolution of asset utilization. Without the ability to simulate scenarios, this would not be a simple question to answer.

When organizations have options across their global footprint, scenario-based decision making can guide them through this type of crisis. They can take a holistic view of demand and supply, and direct and indirect costs. They can also optimize bottom line results and manufacture in the locations where it makes most sense. Where this approach has been successfully deployed, the results have been impressive.

We’ve seen gross margins rise and the ability to meet demand increase, with service levels also improving. Perhaps the biggest enhancements, however, have been in supply chain resilience. Organizations that have the ability to react to changing conditions can keep serving clients, avoid revenue loss, keep assets operational and ensure business continuity.

As organizations plan for an uncertain future, they will want to both mitigate risk and protect their profit margins. This will have a significant influence on medium-term investment decisions. As such, we are likely to see regionalization increase, with more digital twins deployed to allow companies to take advantage of the flexibility their new footprint enables.