As the security and stability of global supply chains hang in the balance, due to both the pandemic and the geopolitical situation between the US and China, many corporations are looking for ways to mitigate risks to their supply chains. However do consulting firms have the needed scale or external partnerships that provide category knowledge, understand risks and offer global coverage to help monetize prevalent opportunities?
Supply chain optimization was already a key priority for several corporations, but after COVID-19, it has taken a whole new meaning. Prior to COVID-19, American corporations were already re-considering certain supplier relationships primarily on account of increasing tariffs due to various US-China trade disputes and over-reliance on China as a manufacturing hub. Additionally, with just in time (JIT) supply models, inventories had shrunk even for critical items. However, as the pandemic caused severe strain to extended supply chains with countries going into lockdown, corporations and governments have started questioning their sourcing philosophies. In parallel to these questions, there has been an acceleration of certain supply diversification movements, such as “China Plus One”, “Near Sourcing”, “Localization”, or “Moving closer to the customer”.
A survey published in March 2020 by the Chartered Institute of Procurement and Supply found that 86% of supply chains are impacted by the COVID-19 pandemic, and 95% of companies experienced supply chain disruptions in late March 2020. Furthermore, 1,000 of the world’s largest companies had over 12,000 factories, warehouses, and operations in quarantined regions in early March 2020. This led to a drastic increase in calls for more resilient supply chains. It, therefore, comes as no surprise that about one-third of corporations with global supply chains have moved their sourcing and manufacturing activities out of China or plan to do so in the next two to three years, according to a recent survey from Gartner Inc.
However, the benefits of relocating from China may be offset by the various challenges faced when diversifying supply chains. For instance, corporations may find it difficult to identify partners from other countries that can manufacture to the needed standards. Any slippages in quality may risk brand equity, increasing the overall opportunity cost of moving out of China. Additionally, regulatory interference, persistent transportation barriers, and institutional dysfunction may result in longer supply chains, less agility and higher costs.
In such a scenario, value-addition at a third country (trans-shipment), relabeling, and then re-exporting might become more prevalent. In order to successfully bring resiliency and transparency to their supply chains, corporations need to have a full understanding of its risks in the industry that go beyond tier 1 suppliers. Nonetheless as push for the adoption of “China Plus One” sourcing strategy intensifies, corporations also need help with identifying alternate suppliers, supplier and product profiles, should-cost models, pricing benchmarks and RFX support to name some.
With corporations looking towards consulting firms for guidance in building resilient supply chains, consulting firms need external partners that can provide them the needed scale, possess procurement category knowledge, provide global coverage offering contextualized and linguistic regional research, and leverage technology for efficient delivery.
Please write to PS@Evalueserve.com to learn how Evalueserve can be your true partner helping you monetize the prevalent supply chain opportunities and help solve client pain points.