Supply chain challenges are acute and still unfolding. Manufacturers face near-continuous global disruptions that add new costs and test their ability to adapt. Purchasing manager reports continue to reveal systemwide complications from high demand, rising costs of raw materials and freight, and slow deliveries. In addition, North American manufacturers and distributors that remain dependent on foreign suppliers from Asia and other parts of the world continue to face challenges on multiple fronts from ongoing chip shortages to transportation uncertainties (e.g., the Suez canal blockage or rail and port strikes) and rising transportation costs.
After years of the notion of reshoring inspiring much discussion but relatively little real change in direction, the current global situation has many manufacturers seriously considering restructuring their supply chains. There are several reasons to consider doing so, such as: reducing business risk by simplifying the path from producer to end customer, reducing lead times, and reduced inventory requirements, among others.
One of the first places this comes up in M&A is in due diligence, where buyers and their financing partners need to assess the risk in a manufacturer’s supply chain and make any adjustments to valuation or structure accordingly. The theme emerged during the early days of the COVID-19 pandemic, and persists as a key risk to understand as supply chain issues have worsened. It’s also inspiring some manufacturers to look for integration opportunities, and acquisitions that help secure channel access either up or down the supply chain.