The China Riptide / Risky Supply Chains

This afternoon, I'd like to welcome back a regular guest columnist to Spend Matters. Brian Sommer is a Senior Fellow at Azul Partners, founder of Tech Ventive, and is author of the blog Services Safari..

There's a great article in this month's Supply Chain Management Review by George Stalk, Jr. titled "Surviving the China Riptide". George is with Boston Consulting Group and the kind of thinking they do is reflected well in this piece. He has done an outstanding job of understanding the true costs of using local, global and a mix of suppliers. The article takes the reader through a series of cost analyses assuming different combinations of US or China manufacturers and whether they possess non-integrated, semi-integrated or fully integrated supply chains. Stalk's analysis helps to understand why some firms:

- move/keep much of their sourcing in-country

- develop their own transportation solutions

- rethink how much of each part should be made by country location

- why some firms are re-routing offshore shipments to different, less congested ports

- etc.

But more important, Stalk's analysis is great at understanding how Chinese firms may try to enter and win in the US market. His suggestions for US manufacturers/assemblers on how to win this competitive battle are a must read.

Another fine article in the same issue is "Are Global Supply Chains Too Risky" by Mark Crone. Mark is a supply chain practitioner for Limited Brands, Inc. Crone makes many fine points and offers a number of strong recommendations in this piece. What I was really struck by was his observation that a company’s operating costs are made up of three main costs: Inventory, Transportation and Storage/Handling. In a pre-global sourcing, lean-manufacturing world, Transportation costs make up a significant component of operating costs. However, when one looks forward to a low-cost country sourcing, very global world, the mix changes remarkably. In that world, components are arriving and passing through numerous countries and transportation facilities. What CPOs must pay close attention to shifts. Inventory costs must increase as more inventory is needed to cover potential outages driven by a variable and long global supply chain. The same is true for storage and handling costs. Finding the right risk/reward mix will be a real challenge for supply chain/CPO executives.

Both pieces are highly recommended. Pass them around your supply management team at the next group meeting. See what sort of conversations they trigger.

Brian Sommer authors the blog: Services Safari.

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