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If your company manufacturers product in China, it is inevitable that you are feeling the pressure of decreasing profit margins. With appreciating currencies, specifically between China and the U.S., the margin is shrinking daily. The cost savings once enjoyed are being lost.
Many still view supply chain as a manufacturing term, but in reality the supply chain also importantly involves financial flows. Without taking into account currency exchange risk, profits can quickly erode by the increasing cost of material inputs, finished product and inefficiencies. This is a triple whammy--a true game of Press Your Luck if the only consideration is the direct purchasing cost.
With this reality, there are three ways a company can protect itself from currency movements. The first is to hedge against risk through common financial tools or by generating monetary assets in China. Secondly, the downstream supply chain must be considered. How can profit margins be protected by reducing unnecessary costs in downstream operations? Lastly, moving to a new low cost source can provide protection. The key is building this competency.
Source: Industry Week, http://industryweek.com
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