As lead times stretch and carbon costs climb, supply chain leaders are revisiting an old idea with new urgency – co-locating suppliers, production, and distribution in tighter, purpose-built clusters. New MIT data suggests supplier park models could reduce freight and inventory costs by over 70%, but execution requires capital, coordination, and commitment.
Proximity as a Fix for Supply Chain Strain
For decades, distributed networks promised flexibility and access to global talent and resources. But today’s fragmented logistics networks, often stretched over hundreds or thousands of miles, are proving costly, slow, and environmentally unsustainable. In fast-moving consumer goods (FMCG), for instance, suppliers located 500–1,000 miles from production sites can add up to eight weeks in lead time, inflating inventory holding costs by as much as $10 million annually.
Carbon emissions also compound the issue. Long-distance freight generates approximately 250,000 kilograms of CO₂ per year in a typical dispersed FMCG network, adding pressure from customers and regulators alike.
A new study by MIT offers a sharp contrast: in best-case scenarios, co-location of supply chain nodes, such as in a “supplier park” model, can reduce freight costs by 77%, inventory holding costs by 72%, and Scope 3 carbon emissions from transportation by more than 80%. The model’s tight physical footprint drastically cuts both distance and coordination frictions.
Co-location isn’t new. Automotive firms have long clustered operations to drive efficiency. What’s changed is the broader relevance. Digital tools now make it feasible for more sectors to coordinate closely with upstream suppliers and logistics nodes, particularly in carbon-sensitive industries.
Execution Risk Remains the Barrier to Scale
Despite its advantages, co-location is not a quick fix. Establishing a shared physical footprint requires upfront investment, long-term planning, and supplier buy-in. The business case depends heavily on finding a site that balances cost, labor access, infrastructure, and proximity to markets.
Firms must also consider resilience. Concentrating supply nodes reduces geographic flexibility. Hybrid models, such as localized clusters rather than single-site campuses, may offer a middle ground.
The urgency, however, is real. Global volatility, tighter emissions rules, and customer pressure on delivery speed and sustainability are making traditional network designs harder to justify. Structural inefficiencies once tolerated as trade-offs are now clear liabilities.
Rethinking Proximity as a Strategic Lever
The MIT findings highlight that co-location is not simply a cost-cutting tactic, but a structural shift in how supply chains are configured. When thoughtfully implemented, supplier parks and regional clusters can reduce emissions, shorten lead times, and mitigate inventory risk.
Yet the path to adoption requires more than operational redesign, it demands long-term alignment across partners, capital planning, and location strategy. As networks become increasingly complex and carbon-constrained, proximity may prove to be less about convenience and more about control.
