Recent Supply Chain Trends – “Values Based” Sourcing in the Wear-Part Business.

March 22, 2024

Unicast has seen some interesting supply chain trends since the end of COVID. Many of our customers have requested wear-parts from countries that share their corporate or even national values. There is a definite trend in “values-based” sourcing sometimes referred to as near-shoring or friend-shoring. Sourcing is based on the company’s ethos, geopolitical views, and even ESG criteria. Recent trends have seen many of our customers wanting to source from countries that mitigate as much as possible geopolitical risks even if the cost of the wear-part is higher.

China’s relationship with its Asian neighbours and Western nations is a noted concern for many of our customers. The deterioration of some of these relationships or a change from the status quo could result in severe supply chain disruption. Some customers during RFP/RFQ processes have now implemented a procurement point system and apply negative points if products are being sourced from countries of concern to go along with disqualification if business is being conducted with sanctioned countries such as Russia, Venezuela, North Korea, or Iran.

Recently, India has also been flagged as a higher risk country to source from due to its recent government interference in Canada and the US. Some customers have even sighted the India governments accelerated import, refinement, and export of Russian oil to skirt sanction as a factor in their purchasing decision.

Closer to home, US government policies and election uncertainty have the potential to disrupt the supply chain and global procurement landscape in the wear-parts industry. The current tariff rate of 25% could be increased to as much as 60% on steel products and would have consequential effects on the current supply chain. If this was to occur, a rush to other steel producing regions such as Vietnam, Malaysia, and Mexico would most likely follow. These regions have highly skilled workforces whose labour costs compete with China while offering quality products. These regions also offer stronger protection on Intellectual Property (IP) which gives them a competitive advantage over China.

Regardless of risk, there are customers who are after the lowest cost product no matter the country of origin, environmental standards, or reduction in quality. Ironically, we often see this from companies who, corporately, may have stringent ESG standards and net-zero goals. As a supplier of superior long-lasting wear-parts, we are sometimes faced with a choice to do business with companies and suppliers who don’t share our core values which results in us declining the business.

Diversification is the best mitigation of risk and in 2023, Unicast sourced its wear-parts from 6 different countries outside of China representing 30% of all orders. China will always be an important supplier of wear-parts for Unicast and we have built a trusted network of foundries who provide a quality product. However, by utilizing a network of partner foundries around the world, Unicast can mitigate geopolitical risk and potential supply chain disruption, while servicing those customers who base their purchasing on a multitude of procurement philosophies. In an unpredictable world, the best strategy is to not have all your supply chain eggs in one basket!