Decentralized Manufacturing Preserves Profit

Today, global pandemics, national disasters, and geopolitical conflicts can bring supply chains to a halt in the blink of an eye. As manufacturers look to preserve profits and increase resilience—from 24/7 supply chains to ‘friend-shoring’—decentralized manufacturing is one strategy that can help them do just that.

Decentralizing manufacturing involves transitioning from one centralized factory or plant to many smaller manufacturing facilities. This strategy offers vast benefits—minimizing the impact of supply shocks and providing closer access to designated markets. For several elite medical centers, decentralizing cell therapy manufacturing has increased flexibility and set them up to beat big pharmaceutical manufacturers.

However, the full impact of decentralized manufacturing is nuanced, and the decision comes with tradeoffs. The strategy adds supply chain complexities and expenses—necessitating additional carrier and supplier relationships and removing the benefits of economies of scale.

Amid these logistics challenges, robust supply chain technology can support a successful and profitable decentralization. Manufacturers can build more resilient, visible supply chains over the long run using a transportation management system (TMS) to simplify the management of disparate facilities.

Access the advantages of supply chain resilience

Creating durable supply chains is vital in a world of unprecedented port bottlenecks and labor shortages. With one centralized manufacturing facility, regional disruptions such as the Russia-Ukraine conflict can shut down production and shipping with no end in sight. Decentralized manufacturing minimizes the effect of these external shocks by spreading delay risks across many locations and suppliers.

Centralization often involves single sourcing—making these manufacturers more sensitive to individual supplier disturbances. For example, if sourcing parts solely from China, regional port congestion can increase shipping costs significantly—or even halt inbound supply.

By decentralizing, manufacturers have more production facilities and supplier options—allowing them to carry on amid regional shocks or individual supply delays. If something happens to one supplier, they can continue production in their other factories using different suppliers, easing price fluctuations and making costs more predictable.

Cope with fresh logistical complexities

Despite its many benefits, decentralized manufacturing comes with many moving parts—increasing the number of variables supply chain managers must oversee. According to Josh Miller, Vice President of Sales at CTSI-Global, “Decentralizing manufacturing adds overall complexity to supply chains that you wouldn’t have with single sourcing.”

Additional manufacturing facilities require more suppliers, carriers, shipments, and sophisticated logistics coordination. With that, there are new considerations that arise with decentralized logistics.

1. Wider carrier and supplier relationships

Manufacturers can get away with single sourcing and a limited array of regional carriers with one centralized factory. In contrast, decentralizing means each facility needs inbound and outbound transport in a different location.

Manufacturers who divide production into multiple facilities or plants need access to a more extensive carrier network and multi-sourcing to deliver freight in more than one region.

2. Intricate shipment coordination

Decentralized manufacturing facilities require complex shipment coordination. According to Miller, “Coordinating shipments with a variety of lead times can be challenging for supply chain managers.”

With some parts manufactured in Europe and others manufactured in North America, more coordination and oversight are needed to ensure the parts arrive at the same time for assembly. Greater visibility into shipment statuses and arrivals is a must for manufacturers coordinating these shipments.

3. Higher cost of production

Manufacturers may lose certain pricing advantages and economies of scale efficiencies through decentralization. Centralized manufacturers produce goods in large batches, allowing them to purchase higher volumes of supply at discounted prices, reducing per-item costs. Once manufacturers transition to decentralized facilities and smaller supply orders, they have to forgo the bulk order discounts and instead pay higher prices.

Ease logistics while decentralizing manufacturing

Managing a more complicated network of factories, carriers, contracts, and suppliers requires complete oversight of widespread shipments. Without the right technology to handle increasingly complex logistics, manufacturers cannot coordinate arrivals, view shipping statuses, and explain to customers when goods will arrive.

Transportation management systems can help supply chain managers cope with new challenges when decentralizing. “A TMS takes the gut experience out of the equation,” commented Miller, “delivering more systematic decisions based on data and technology.”

Advanced logistics technology can revolutionize shipping workflows:

  • Automation: TMS consolidates carrier data and automates shipping workflows, making it easy to choose and onboard new carriers. By automating the rating and selection process based on costs and services, manufacturers can ensure that every location selects the optimal carrier for each shipment.
  • Oversight: Providing global visibility into shipment statuses, routes, rates, carrier contracts, and more, TMS allows manufacturers to monitor all inbound and outbound shipments at a glance.
  • Regulatory upkeep: As manufacturers decentralize and expand operations into new countries, TMS manages any new legal or tax requirements. This technology monitors whether customers adhere to the specific laws and regulations that affect their activities.

Access strategic support for scaling manufacturers

Experts predict that smaller facilities and closer proximity to customers will soon give rise to the prominence of decentralized manufacturing thanks to the rapid development of technology such as 3D printing. CTSI-Global’s Honeybee TMS is another integral development—helping manufacturers harness the benefits of decentralization through transformative technology. Honeybee TMS™ helps manufacturers manage all the complexities and possibilities that can arise with front-to-back supply chain support.

Stay ahead of manufacturing disruptions as you decentralize. Contact us today.