One area of vulnerability the current crisis has placed near customers to meet local needs and revealed is that many companies didn’t know the accommodate variations in demand. The second suppliers their own suppliers were using and thus is to define what needs to be done near innovative were unable to manage critical elements of their supply bases to keep up with technological value chains. Companies should know where their change. Nextshoring is about understanding how most critical components come from. On that basis, manufacturing is changing (in the use of digitization they can evaluate the level of risk and decide what and automation, in particular) and building the to do, using rigorous scenario planning and bottom- trained workforce, external partnerships, and up estimates of inventory and demand. Contractors management muscle to deliver on that potential. It should be required to show that they have risk plans is about accelerating the use of flexible robotics, (including knowing the performance, financial, and additive manufacturing, and other technologies to compliance record of all their subcontractors, as create capabilities that can shift output levels and well as their capacity and inventories) in place. product mixes at reasonable cost. It isn’t about optimizing labor costs, which are usually a much Accelerate ‘nextshoring’ and the use of smaller factor—and sometimes all but irrelevant. advanced technologies In some critical areas, governments or customers may be willing to pay for excess capacity and 4. From managing for the short term to inventories, moving away from just-in-time capitalism for the long term production. In most cases, however, we expect companies to concentrate on creating more flexible Stop quarterly earnings estimates supply chains that can also operate on a just-in- Because of the unprecedented nature of the case approach. Think of it as “nextshoring” for the pandemic, the percentage of companies providing next normal. earnings guidance has fallen sharply—and that’s a good thing. The arguments against quarterly For example, the fashion industry expects to shift earnings guidance are well known, including that some sourcing from China to other Asian countries, they create the wrong incentives by rewarding Central America, and Eastern Europe. Japanese companies for doing harmful things, such as carmakers and Korean electronics companies were deferring capital investment and offering massive considering similar actions before the coronavirus discounts that boost sales to make the revenue outbreak. The state-owned Development Bank numbers but hurt a company’s pricing strategy. of Japan is planning to subsidize companies’ relocation back to Japan, and some Western Taking such actions may stave off a quick hit to the countries, including France, are looking to build stock price. But while short-term investors account up domestic industries for critical products, such for the majority of trades—and often seem to as pharmaceuticals. Localizing supply chains and dominate earnings calls and internet chatrooms—in creating more collaborative relationships with fact, seven of ten shares in US companies are critical suppliers—for example, by helping them owned by long-term investors. By definition, this build their digital capabilities or share freight group, which we call “intrinsic investors” —look capacity—are other ways to build long-term well beyond any given quarter, and deeper than resilience and flexibility. such quick fixes. Moreover, they have far greater influence on a company’s share price over time than Nextshoring in manufacturing is about two things. the short-term investors who place such stock in The first is to define whether production is best earnings guidance. From thinking about the next normal to making it work: What to stop, start, and accelerate 87