Global supply chain leaders continue to feel the tension of trade war and COVID-19 as many prepare to move operations out of China en masse. A new survey conducted by researchers from Gartner between March and April this year revealed that out of 260 companies who have sourcing and manufacturing activities in China, one-third have either already moved or are planning to move their operations to places like Vietnam, India, and Mexico by 2023.
Tariff costs are among the primary factors why businesses are looking to relocate. Since 2018, businesses have experienced increases of 10% or more to their supply chain expense because of the U.S.-China trade war, respondents said. Although these tariffs are not paid by the Chinese, they are passed along to American consumers negating the value China has always provided as being the epicenter of low-cost manufacturing.
Additionally, respondents stated that disruptions from COVID-19 and the U.K.’s economic withdrawal from the European Union, known as Brexit, also factored into their relocation plans. These current situations brought to light the necessity to build a more resilient network in preparation against multiple risk scenarios. These businesses are exploring options to keep sourcing, manufacturing, and distribution highly visible and agile in the case of unforeseen circumstances when they need to move operations around quickly.
The structural costs involved with implementing more complexity can vary greatly and businesses will have to balance the risks of supply chain delays and shortages versus the costs of implementing more operational efficiency. A quarter of the businesses surveyed stated that one way to decrease these costs was by regionalizing manufacturing and bringing production near- or onshore to be closer to their customers.
For help with your logistics or supply chain strategies, contact one of our consultants today!