Tariff costs are the main reason firms are reorganising supply chains © BRENDAN SMIALOWSKI/AFP via Getty Images
Tariff costs are the main reason firms are reorganising supply chains © BRENDAN SMIALOWSKI/AFP via Getty Images

Third of supply chain leaders plan to move business out of China

30 June 2020

A third of global supply chain leaders have moved sourcing and manufacturing activities out of China or plan to by 2023, according to a survey.

The survey of 260 supply chain leaders, conducted by Gartner, found tariff costs were the primary reason many supply chain managers planned to move supply chains.

While China has established itself as a key source of supply for almost all major industries, the margin between those companies planning to add jobs in China versus taking them away narrowed sharply in 2019. 

Kamala Raman, senior director analyst with the Gartner Supply Chain Practice, said: “We have found that tariffs imposed by the US and Chinese governments during the past years have increased supply chain costs by up to 10% for more than 40% of organisations. 

“For just over one quarter of respondents, the impact has been even higher. Popular alternative locations are Vietnam, India, and Mexico. The second main reason for moving business out of China is that supply chain leaders want to make their networks more resilient.”

Firms cited the need to balance supply chain efficiency and resilience in order to manage risk. Over half (55%) expected to have a highly-resilient network in the next two to three years, though 58% agreed that more resilience also resulted in additional structural costs to the network.

Raman added: “To find balance, supply chain leaders must engage in risk management to assess their organisation’s willingness to take risk on board and decide how to quantify that risk against other network objectives such as cost-effectiveness.”

A quarter of respondents stated they had already regionalised or localised manufacturing to be closer to demand. Despite the cost of adding more players to the ecosystem and increasing the overall network complexity, regional supply chains can ease delays and shortages in times of disruption, Gartner said. 

Raman said: “Many Western organisations will have to explore new forms of automation on the factory floor to decrease the costs of near or onshore production. Some also favour a partial option, such as manufacturing in Asia and moving only the final assembly closer to the customer.”

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