Is "Friendshoring" the Answer to Supply Chain Management Issues?
What is Friendshoring you ask? In supply chain management, friendshoring is the process of moving supply chains away from nations considered economically volatile or politically unsafe to countries perceived as “low-risk.” By engaging in friendshoring, businesses can avoid falling prey to the export controls exercised by unfriendly countries.
For instance, a country and its allies may implement numerous sanctions against a nation that has invaded another country. As a result, it may rely on friendshoring to avoid being impacted by any retaliatory export controls.
For decades, global supply chains have been the backbone of key manufacturing processes for Western companies. Companies throughout Western Europe and the United States have kept production costs down, gained market advantages over their competitors, and maximized revenue as a result of globalization.
However, recent supply chain disruptions stemming from the global pandemic and Russia’s invasion of Ukraine have prompted many Western companies to reevaluate their supply chain management strategies.
Specifically, hundreds of businesses have adopted a new practice known as friendshoring, which involves bringing key manufacturing processes to nations perceived as economically and politically “low-risk.”
Friendshoring promotes supply chain resilience, especially amid ongoing economic and political turmoil. However, many experts are concerned that this new practice will fuel the continued deglobalization and geopolitical fragmentation of the world’s economy.
When engaging in friendshoring, manufacturers and suppliers move away from relying on global supply chains and instead focus on forming their own regional partnerships with entities that exhibit shared values.
Through friendshoring, global brands can still expand production facilities and source key raw materials. However, they mitigate the risk of a significant supply chain disruption by working with companies located in “friendly” nations.
Whereas traditional global partnerships focus solely on production costs and supply chain efficiency, friendshoring prioritizes long-term partnerships. To nurture these trust-based relationships, supply chain partners engage in collaborative decision-making and strive to provide mutual benefits to one another.
There are numerous benefits associated with friendshoring, including:
1. Enhanced Collaboration and Knowledge Sharing
Trust-based friendshoring relationships prioritize mutually beneficial agreements. When both parties proactively work to help their partner succeed, they are more likely to share information and collaborate.
2. Improved Communication and Responsiveness
Typically, friendshoring partners are geographically close to one another. As such, they do not contend with as many communication barriers, such as cultural differences or time zone disparities. The end result is improved communication and better responsiveness by both parties.