In the face of inflationary pressure, geopolitical tensions, and Environmental, Social, and Governance (ESG) concerns, manufacturers worldwide are compelled to reevaluate and fortify their supply chains. The need for agility and adaptability has become more pronounced as they look for new and different ways to minimise disruptions. One such method has emerged as decentralised manufacturing, a production model that sees production take place in multiple locations, rather than just one, allowing organisations to produce products closer to the sources of need. Yet despite the benefits of decentralised manufacturing, some organisations still find it challenging and need to weigh up the pros with the cons to ultimately decide whether this model will help to bolster the resilience of their supply chains.

In the third article of this series, RSM’s specialists in Europe delve into how manufacturers are creating more resilient supply chains, and how decentralised manufacturing may be the answer they need.

If you missed the first two articles in this series, be sure to find them on our manufacturing page or by following the links below:

-    How manufacturers are adopting Industry 4.0 in Europe | RSM Global

-    Manufacturing in Europe: Data, cybersecurity and digital transformation | RSM Global

Strengthening supply chains

The last few years have certainly shone a spotlight on the need to strengthen supply chains. ‘When it rains, it pours,’ as the old adage goes, and the manufacturing sector has been drenched. With the geopolitical issues and economic turbulence, manufacturers have been forced to look at the weaknesses in their supply chains, considering their global implications and associated risks.

With the need to assess and strengthen supply chains and mitigate risk, manufacturers have been looking at the ‘return-shoring’ family of options, which is to say ‘friendshoring’, ‘nearshoring’, and ‘reshoring’. “Reshoring is a strategy that is becoming more prevalent in the UK and is contributing to more agile supply chain networks that are built upon multiple sourcing with greater flexibility. While this approach can help to counteract inflationary pressures and geopolitical shifts by reducing dependence on single suppliers, technology holds the key to truly transforming global supply chain networks,” says Mike Thornton, Partner and Head of Manufacturing at RSM UK.

In looking at specific technologies, Thornton continues, “Manufacturers must prioritise digital integration through technologies like Artificial Intelligence (AI), Internet of Things (IoT), and blockchain for transparent data sharing. This will continue to enable better risk assessment and responsiveness to uncertainties. These technologies will also encourage greater collaboration between customers and suppliers and will help organisations align with the UK's evolving Environmental, Social, and Governance (ESG) related regulatory demands, not to mention meet changing consumer preferences.”

These technologies are key to manufacturing’s resilience and success as a whole, and this is greatly exemplified through their means of risk management and mitigation. As put by Götz Brinkmann, Principal at RSM Ebner Stolz, “Resilient supply chains should not only be designed for ‘defensive’ agility and resilience but should also be able to anticipate potential developments and risks to avoid disruptions. Decoupling supply stages, creating buffers, and decentralising the footprint can be an answer to increased agility. This is a trade-off between robust supply chains and cost efficiency. Digitalisation can help strike a balance in the dilemma between resilience and efficiency.”

In Italy, manufacturers have been especially wary of the risks imposed by global supply chains, having seen a percentage of companies increasingly ‘back shoring’ since 2016. “Italy is the second largest industrial country in Europe. The degree of severity from foreign dependencies for Italian companies is, on average, higher than that of other companies in the European Union. The issue of strengthening value chains is therefore a critical factor for the domestic industrial sector and has been at the centre of government strategies since 2021,” says Raffaele Mazzeo, Partner and ESG Leader at RSM Italy.

Mazzeo continues, “In January 2022, the Ministry of Economic Development established a ceiling of facilitation measures of more than 2 billion euros to strengthen integrated supply chain projects. Additionally, since 2016, Italy has been going through a phase of revisioning its supply chains, which has seen a significant number of companies switch from foreign suppliers to domestic ones. This has had multiple benefits – reduced risks, the ‘made-in-Italy effect’ that has improved the image of Italian products, and the closer proximity of supplier and development means that supply chains are tighter and more visible.”

Decentralising production lines

Whilst the ethos around decentralised manufacturing (also known as distributed manufacturing) is not necessarily new, the current trend of decentralising manufacturing functions towards separate entities in the is relatively modern. With production distributed across separate facilities in different regions, (often in smaller factories, or ‘microfactories’), manufacturers are able to meet the specific needs of those regions and boost local job creation, whilst also tightening their supply chains through proximity to the source of need. “This approach fosters agility, allowing for smaller-scale more localised production. When done well, it can reduce transportation costs, enable quicker response to market demand, and lower environmental impact through more localised production,” says Thornton.

Despite this, adoption of this model is slow and there are challenges that come with it. “Decentralised production networks certainly exist; in parts of the automotive industry for example,” says Brinkmann, “but they are not found everywhere in middle-market industries. Some small and medium-sized enterprises are not yet able to coordinate and manage global supply chains and production networks, especially with the complexity of coordinating multiple production sites.”

“There are also scalability hurdles to consider and, for some companies, the co-ordinational complexities of balancing standardisation with local customisation may prove too much for it to be a viable option. Especially with the potentially higher costs per unit to factor in,” says Thornton.

However, as we are in the advent of Industry 4.0, the manufacturing sector of the future could see these new, exciting technologies paired with a distributed manufacturing model to overcome these challenges and tip the scales in the favour of manufacturers who aren’t yet able to adopt this model. As Brinkmann observes, “Established Industry 4.0 technologies can enable these companies to overcome these obstacles in the future. Examples include virtual commissioning using augmented reality, predictive maintenance, and digital twins (digital models of an intended real-world product).”

And, as Thornton adds, “3D printers are in an excellent position to drive a decentralised approach, but this is yet to be adopted and explored by large parts of the manufacturing industry to its full extent. Those that explore the potential impact that this approach could have first, will be best placed to take advantage.”

The takeaway

With manufacturers under increasing pressure to strengthen their supply chains, decentralised manufacturing has emerged as a promising solution, offering more flexibility in production. While this approach certainly has its benefits such as agility and reduced costs, it also poses challenges through scalability and coordination complexities. However, with the evolution of Industry 4.0 technologies, there's optimism for overcoming these obstacles in the future.

With numerous benefits to consider, there are also hurdles in the way of adoption and ultimately, organisations must carefully assess the pros and cons of decentralised manufacturing to determine its suitability for their objectives. Early adopters who effectively leverage this approach may stand to gain a competitive advantage, and as the industry continues to evolve, embracing innovative solutions like decentralised manufacturing will be crucial for staying ahead in an increasingly competitive market.

If you want to know more about how RSM can help your organisation, or if you would like more insights, please visit our manufacturing page.