Regionalization and Carbon Neutrality Strategies Positively Impact Manufacturers

Article

May 12, 2023

Long gone are the days of relying on international “just-in-time” systems for supply chains. Thanks to the volatile environment that has become the new norm, supply chains have been permanently disrupted. Manufacturers now bear increased costs while still being saddled with outstanding debt. Today’s U.S. middle- and small-market manufacturers do not have the time or ability to reassess supply chain optimality.

Supply chain disruptions can derail a business. These can include:

Inventory delays and/or long cycle times
Manufacturing and logistics workforce shortages
Shifts in demand patterns
Excess or obsolete inventory
Deteriorated customer service
Lost or delayed sales
Lost profit
Increasing tax implications

How can the U.S. manufacturing industry overcome these supply chain challenges and potentially cut costs at the same time?

Most firms are moving manufacturing closer to their end-markets to shift from globalization to the regionalization of manufactured products. At the same time, firms are making the shift towards a sustainable, more carbon-neutral supply chain with associated legislative financial incentives.

Moving Operations Regionally

We have entered a period that is the polar opposite of globalization — the shift to regionalization. As companies shift their manufacturing from Asia to the Americas, they are experiencing lower costs, quicker time-to-market and more importantly, reduced risk.

With regionalization, U.S. manufacturers have more control over their operations and supply chain. Along the U.S.-Mexico border, factories can ship product to U.S. distribution centers in less than 48 hours. With the United States-Mexico-Canada Agreement Implementation Act (USMCA) restored, there are many ways to import raw materials from Asia into Mexico, build your products, then transport the finished goods into the U.S. on a free-trade basis. There will be no need to wait on ships to dock and unload cargo at the port. If you’re manufacturing in Asia and trying to ship goods over the ocean, it takes approximately 60 days to make the trip, barring any issues with customs or further shipping delays. Once the cargo makes it to the U.S., it could also spend any number of days, weeks or even months waiting to be unloaded, transferred to a new carrier and transported to market.

Imagine how much cash is locked up in the value of the inventory sitting idle in ports and freighters that can be unlocked through regionalization.

Shifting to Carbon Neutrality

When companies begin to prioritize a more efficient and sustainable supply chain, it can also drive revenues and reduce operational risks. With the stated Federal target to be carbon neutral by 2050, more manufacturers are being held accountable to produce carbon-neutral targets. More importantly, they must develop real plans on how to achieve carbon neutrality; and that’s where most companies are falling short.

Manufacturers need help calculating their carbon footprints, increasing their need for proper carbon accounting and reporting. The European Union has already passed laws and the SEC is beginning to put their own regulations into place – it’s only a matter of time before this will be a requirement for all companies.

But what most U.S. manufacturers don’t know is that there are ways to drive towards carbon neutrality while also increasing profits. Most executives believe that achieving carbon neutrality will create incremental expense for their organization. However, thanks to the Inflation Reduction Act of 2022, The CHIPS and Science Act, and various other legislative changes, this is no longer the case. The U.S. government has done a wonderful job of incentivizing businesses to become more carbon neutral and to move manufacturing back to the states.

New operational strategies, innovation, nearshoring/reshoring and implementing digital transformation to measure progress are key, as these all come with tax credit and incentives. Achieving carbon neutrality while decreasing supply chain challenges and driving profit has seemed impossible, but can now become reality.

How We Can Help

Cherry Bekaert is helping manufacturers today with supply chain and operational challenges. Unlocking working capital and lowering costs are more critical than ever before. Through tax credits and incentives, we understand how to help companies achieve their sustainability goals while boosting profitability. We execute carbon accounting at the firm level and can help with forthcoming carbon reporting and disclosure needs. Our teams help organizations implement digital solutions that measure progress and drive effective decision making and monitoring.

Reach out to your Cherry Bekaert advisor to learn more about how our industry-driven insights can help your business increase supply chain agility and profitably drive sustainability efforts.