Assessing the Varying Risks of Manufacturing Disruption

As businesses reevaluate their production locations, the risk of disruption is not uniformly shared across sectors.

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New research from McKinsey & Company reveals that certain industries are experiencing more significant pressure as global manufacturing networks adapt to geopolitical changes, trade regulations, and ongoing supply chain fluctuations.

Industries at High Risk of Disruption: Electronics, Machinery, and Semiconductors

Electronics, machinery, and semiconductors are currently at the forefront of disruption risks. These sectors tend to concentrate production in a limited number of countries, increasing their vulnerability to tariffs, trade barriers, and geopolitical tensions.

Moreover, the high capital investment required for manufacturing makes relocating production a complex and costly decision. For instance, semiconductor production relies on specialized equipment and an extensive skill set. With governments advocating for increased domestic manufacturing and tighter technology export controls, companies face the urgent need to reconsider where they establish new facilities and the level of risk they are willing to accept in any particular region.

According to McKinsey, decisions about manufacturing footprints in these industries are no longer solely influenced by cost factors. Instead, access to markets, government incentives, and supply chain security have gained prominence.

Industries with Moderate Disruption Risks: Life Sciences and Chemicals

Life sciences and chemicals are positioned in the middle of the disruption spectrum. There is a growing trend towards localizing production, particularly for critical pharmaceuticals, medical supplies, and special chemicals.

However, the stringent regulatory landscape complicates rapid manufacturing relocations. The process of establishing new facilities or moving existing operations can take several years, encompassing approvals, validation, and compliance efforts. Consequently, even when incentives are available, reshoring in these sectors tends to be methodical and carefully strategized.

According to McKinsey’s analysis, companies in this domain must find a delicate balance between resilience objectives and regulatory requirements. Transformations are underway, albeit at a more measured pace compared to higher-risk industries.

Industries Facing Lower Disruption Risks: Agriculture, Minerals, and Energy

Currently, agriculture, minerals, and energy are categorically facing lower disruption risks, primarily because production is inherently tied to geographical elements. Farmland, mineral reserves, and energy sources cannot simply be relocated based on changing policies.

Despite the limitations on flexibility, this geographical anchoring diminishes immediate pressures to fundamentally redesign manufacturing networks. However, McKinsey warns that lower disruption does not equate to immunity; long-term challenges such as climate risks, resource nationalism, and energy transition policies may eventually reshape these sectors, albeit at a slower pace.

Supply Chain Visibility: A Common Weakness Across All Industries

A pervasive challenge confronting all industries is limited supply chain visibility. McKinsey has found that many organizations lack comprehensive insights beyond their direct suppliers, making it difficult to evaluate risks, prepare scenarios, or respond swiftly during disruptions.

Consequently, decisions around manufacturing footprints are increasingly linked to investments in enhanced data management, digital tools, and continuous monitoring, rather than merely relying on one-time network redesigns.