Vipul Kumar, senior manager of procurement with Aranca, discusses how companies are seeking to supplement manufacturing in China with sourcing in alternative locations, to mitigate risk and control costs.
Concerns about the environment, the increasing cost of labor, a shrinking workforce and the U.S.-China trade war are among the factors that are motivating manufacturers to shift a portion of their operations out of China in favor of alternative locations. For the most part, they aren’t going so far as to abandon China altogether — the availability of relatively inexpensive labor continues to assert a strong pull on global manufacturers — but the need to mitigate supply chain risk and prepare for future disruptions is definitely leading to a strategy of greater diversity of sourcing.
Where companies are going for that “plus-one” alternative depends on the industry, Kumar says. Many major automotive companies are planning to move a portion of their production to Mexico, which already has a working supply chain in place, as well as access to the necessary technology. When it comes to the electronics and textile industries, areas that are showing promise as new sources of production include India and countries in Southeast Asia. Other possibilities including locations in Eastern Europe.
The rate of technology adoption remains a concern, in the calculation about whether to diversify some sourcing away from China. Kumar notes that it takes two to three years to onboard major new suppliers and have them acquire the necessary technology tools for modern-day production. As a result, “China plus one” strategies are focusing not on the needs of the moment, but on the long term.
Also important is the proximity of sub-suppliers that can feed raw materials and components to assembly plants. That capability also takes time to develop, Kumar says.
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