Gartner: 33% of Supply Chain Leaders moving China operations

In a survey of 260 global supply chain leaders between February and March 2020, it was found that the COVID-19 pandemic is one of a number of disruptions that have put global supply chains under pressure.

“Global supply chains were being disrupted long before COVID-19 emerged,” said Kamala Raman, senior director analyst with the Gartner Supply Chain Practice. “Already in 2018 and 2019, the US-China trade war made supply chain leaders aware of the weaknesses of their globalized supply chains and questioned the logic of heavily outsourced, concentrated and interdependent networks. As a result, a new focus on network resilience and the idea of more regional manufacturing emerged. But this kind of change comes with a price tag.”

For decades, China has been the go-to destination for high-quality, low-cost manufacturing and it has established itself as a key source of supply for nearly all major industries, including retail and pharmaceutical. However, Gartner research has shown that the margin between those companies seeking to add jobs in China against taking them away narrowed sharply in 2019. This was primarily due to an increase in tariff costs. 

“We have found that tariffs imposed by the US and Chinese governments during the past years have increased supply chain costs by up to 10% for more than 40% of organisations. For just over one-quarter of respondents, the impact has been even higher,” Raman said. “Popular alternative locations are Vietnam, India, and Mexico. The second main reason for moving business out of China is that supply chain leaders want to make their networks more resilient.”

It was found that just 21% of survey respondents believe that they have a highly resilient network today, which means that they have good visibility and the agility to shift sourcing, manufacturing and distribution activities around quickly. However, 55% anticipate to have a highly resilient network in the next two to three years - a reaction to disruptions like Brexit, the trade war and COVID-19.

While, 58% of respondents agree that more resilience results in additional structural costs to the network. “We are at a crossroads in the evaluation of global supply chains that pits just-in-time systems designed to improve operational efficiency against just-in-case plans that emphasize planning and preparing for a range of plausible scenarios,” Raman added. “To find balance, supply chain leaders must engage in risk management to assess their organisation’s willingness to take risk onboard and decide how to quantify that risk against other network objectives such as cost effectiveness.”

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