China Sourcing Can Be Hard On Supply Chain

Busy ports causing supply chain disruptions.

Have a back-up plan when sourcing from China as congestion at U.S. west coast ports could delay products coming in from China, said the Boston Consulting Group. European port congestion is increasing as well.

"In their rush to source from China many companies are blindly walking into a strategic trap. The trap is thinking that sourcing from China will result in lower product costs, when in reality the supply chain dynamics will, in many cases, drive up overall costs and reduce profitability, "explained senior partners, Georgle Stalk Jr. and Kevin Waddell, in their report," Surviving the China Riptide: How to Profit from the Supply Chain Bottleneck."

The authors suggest that U.S. companies look at home or to Mexico for manufacturing locations. They also point out that Western Europe might be better off sourcing in Central and Eastern Europe.

In addition to transportation problems there are other problems according to the report, "Existing rail infrastructure to disperse the flood of goods from China ... is also being strained, with freight out of Los Angeles and Long Beach [America's busiest ports] already very near capacity and freight out of Oakland, Seattle and Tacoma expected to reach capacity in the next couple of years."

In view of these problems, Stalk and Waddell advise companies to take a second look at their China sourcing and consider a variety of options:

  • Build "land-side" capacity at ports not yet overwhelmed by congestion.
  • Explore shipping alternatives, such as air freight, "that may appear costly but may actually lower overall expenditures by reducing hidden costs."
  • Invest in "premiums" and "capabilities" -- paying higher prices, for example, for priority service ("premiums") or improving the company's own abilities to move goods quickly and efficiently past or around congestion.
  • Diversify supply with "multiple suppliers and supply points" or produce critical components and products domestically, accepting higher production costs as a tradeoff for lower supply-chain costs andreliable delivery schedules.

To view the report in .pdf format, visit:
http://www.bcg.com/publications/files/ChinaRipTideMay07.pdf


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