The Fall of ‘Made in China’
While the Trade Wars between the US and China are ramping up, in truth China’s role within global supply chains is already weakening. As organisations recognise the need to improve supply chain risk management and resilience, Alan Gunner, Business Development Director, Adjuno, discusses the future of Made in China.
Resilience versus Cost
Consolidation has driven supply chains in recent decades, as companies have reduced supplier numbers and complexity to shorten lead times, minimise redundancy and eradicate waste. However, lean models with low redundancy create new risks – when problems occur there is minimal contingency. And with a supply chain stretching as far as China it becomes incredibly challenging to mitigate any problems that occur. Apparel retailers, for example, have just one chance to get a new range to market – miss that window and the cost in both lost sales and customer perception can be devastating.
And in an increasingly turbulent global market, new problems continually arise. During January 2018, for example, retailers experienced one of the worst performances from shipping lines in a long time – and that trend is not expected to change. The carrier markets are becoming increasingly difficult to navigate, reinforcing the risks associated with a consolidated supply chain, however slick and low cost.
Resilience is fast becoming a priority – with growing numbers of organisations already using alternative and back up sourcing options in Europe to provide fast contingency; but is that really enough?
The rhetoric between Washington and Beijing is clearly a concern for all organisations currently trading with China – collateral damage is likely to affect UK and EU companies. But the fact is that China’s appeal is already waning. Costs in China are going up. This transformed country has a seen a huge rise in the standard of living for hundreds of millions of people, with the attendant wage rises. China is no longer a low cost, low tech manufacturing environment – the only way firms can access lower cost producers is to move inland, a decision which would add even greater length – and risk – to an already extended supply chain. And with such strong internal demand, Chinese companies will be increasingly focused on their own consumer base.
As a result, growing numbers of retailers are looking at other locations, both to reduce costs and to bring sourcing closer to home. From Cambodia to Vietnam, even Myanmar, there is growing pressure to move away from a China centric supply chain model.
This is not a simple shift: moving sourcing away from China will have significant implications for the supply chain. There is no single location that can replicate the depth of production options available in China: instead companies will by default end up with more locations and more locations, even different countries. Nor are the trading routes and carrier providers as well established. Organisations will need to ensure the right controls are in place, supported by real-time insight, to minimise any customer impact as a result of change.
But the fact is that China will continue to become less and less attractive as a sourcing location – and those retailers willing to make the move now, before any Brexit or Trade War related problems occur, will be best placed to minimise any risk of supply chain disruption and achieved that essential resilience and risk management.
by Alan Gunner, Business Development Director, Adjuno
This article appears in the May/June 2018 issue of Direct Commerce Magazine.