Over on Purchasing's Blogs, Walter E. Buczynski observed in a recent post that the China price continues to rise. According to Walter, "Costs are rising as much as 20% along the coastal cities of China where most of the manufacturing is located. The purchasing price index (PPI) has increased 7% recently." As a result, the US / China trade deficit is declining. But what can companies do to keep Chinese price inflation to a minimum (besides considering other global or regional options)? Walter suggests that "heading west in China is now a popular way hold on to those labor costs. It can be as much as 30% cheaper there. Logistics costs of course are increased, but not to the extent to override significant savings." While heading further from the coasts is certainly an option, I'd suggest that companies should not just factor in added transportation costs into their total cost models. They should also consider the risks of lengthier and lengthier supply chains. And given how China has underinvested in logistics infrastructure in nearly all areas outside of the coastal areas, the risks of supply disruptions or delays are even greater.
- Jason Busch