Geopolitical tensions and market disruptions are driving a shift in global supply chain management. Reshoring, where companies move production and supply chain operations closer to home, is gaining momentum as organizations seek to mitigate risks and capitalize on emerging opportunities.

Chris Bhatt (pictured above), Aon’s global marine chief commercial officer, highlighted the growing trend of moving production from China to markets such as Mexico and Canada.

Automakers, especially in sectors such as electric vehicles and battery technology, are leading this transformation. In 2022, 364,000 jobs were brought back to the United States, an increase of 53% from 2021.

“As geopolitical and market risks rise, I see more companies realigning their resources and production,” Bhat said. “It’s all about enhancing supply chain resilience.”

Elections scheduled in roughly half the world in 2024 and a trend toward protectionism are increasing pressure on existing supply chains. Conflicts in the Red Sea and the Middle East add further unpredictability.

While manufacturing in China has traditionally enjoyed economic advantages, rising production costs and geopolitical risks are causing companies to reevaluate their options. Asia’s vulnerability to weather and climate risks adds another layer of complexity to supply chain decision-making.

Supplier insolvency, especially among smaller suppliers, and less robust legal frameworks in certain regions, may expose companies to risks such as intellectual property infringement. Additionally, companies are under increasing scrutiny for demonstrating their environmental, social, and governance (ESG) commitments, leading to green supply chain initiatives.

Bhatt noted that as countries become more protectionist, risk managers need to strategize their businesses.

“There are increasing pressures on existing supply chains, highlighting the need for resilient and strategic approaches,” he said.

Managing risks and building resilience in supply chains

Focusing on reliability and quality rather than cost makes reshoring more attractive. Remanufacturing brings greater flexibility and certainty to supply chains, ensuring product quality, reliability and cost-effectiveness. It also reduces transit times and promotes better collaboration between stakeholders.

Tom O’Donnell, Aon’s global logistics practice leader, also emphasized that relocation does not guarantee a risk-free environment.

“These changes require careful planning and implementation over time,” he said.

Building in-house production facilities poses significant risks, including project delays, system failures, compliance and integrity risks, startup delays, change management challenges, local planning issues, and construction-related risks.

“Supply chain risk management should be enterprise-wide, connecting risk and insurance professionals with senior managers in supply chain, procurement, treasury, strategy and operations around a common set of data and decision-making,” O’Donnell said.

Resettlement challenges

When relocating facilities from Asia to the United States, other concerns arise, including technology, availability of talent and skills, and labor costs.

“Access to the required skills and technology is especially important because it is not always easy to recruit experienced talent to the location you want to build,” Bhatt said. “Therefore, having a talent assessment strategy becomes even more important.”

Despite proactive measures, supply chain or distribution failures can still impact businesses. According to Aon’s Global Risk Management Survey, 43% of respondents have experienced losses due to such failures, although 63% of them have response plans in place. This underscores the importance of continued preparedness and vigilance in mitigating risks associated with resettlement initiatives.

The transportation and logistics industry must adopt a proactive and dynamic approach to risk management.

“Risk managers must identify, measure and manage their exposure across their global supply chain,” Bhatt said. “Using data analytics and investing in new technologies and ways of working will help companies manage volatility and build resilient operations and workforces.”

Data-driven insights build visibility into the supply chain, helping to mitigate risk. The supply chain must be treated as an enterprise risk, considering sources that go beyond physical damage to include environmental, social and governance events, cyber threats, and supplier insolvency.

Predicting the future landscape of supply chains is crucial. Supplier risk assessment helps understand how changes in key suppliers could impact the overall risk landscape.

Conducting a risk tolerance assessment determines the criteria within which an organization feels comfortable taking supply chain risks. This includes mapping and measuring the risks associated with new supply chain configurations and understanding potential financial impacts such as loss of revenue, loss of traction and increased operating costs.

Improving inventory levels can mitigate supply chain risks. Seeking guidance on investment decisions to manage supply chain risks, including insurance procurement, can effectively mitigate identified risks.

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