Manufacturers Move Away from China Supply Chain

One third of companies with global supply chains have moved their sourcing and manufacturing activities out of China or plan to do so in the next two or three years, according to survey results from Gartner Inc.

The COVID-19 pandemic is one of the primary reasons for the trend, but it’s not the only one. Also driving the shift are the U.K.’s economic withdrawal from the European Union and rising tariff costs resulting from the U.S.-China trade war, the firm said. Gartner’s “Weathering the Supply Chain Storm” survey gathered data from 260 global respondents in February and March.

Chinese products are more expensive to American buyers because domestic importers often pass along the cost of tariffs to consumers. In reaction to those elevated prices, many companies have begun sourcing from alternative locations such as Vietnam, India, and Mexico, Gartner said.

The firm’s research suggested that some businesses are also moving out of China in an attempt to make their supply chains more resilient and agile, but building a more resilient supply chain comes at a price.

Fifty-eight percent of respondents told Gartner that more resilience also results in additional structural costs to the network.

“We are at a crossroads in the evaluation of global supply chains that pits just-in-time systems designed to improve operational efficiency against just-in-case plans that emphasize planning and preparing for a range of plausible scenarios,” said Kamala Raman with Gartner. “To find balance, supply chain leaders must engage in risk management to assess their organization’s willingness to take risk onboard and decide how to quantify that risk against other network objectives such as cost effectiveness.”

One way companies recapture that added cost is by leveraging their newly regionalized or localized supply chains to ease delays and shortages in times of disruption, since manufacturing now occurs closer to the source of demand, Gartner said.

Source: DC Velocity