BOSTON-Sourcing to China might not necessarily be the most cost-effective solution, considering the congestion at North America's West Coast ports and continuing capacity problems at major European ports, and companies might want to consider alternatives such as Mexico and Central and Eastern Europe, according to a new report, “Surviving the China Riptide: How to Profit from the Supply Chain Bottleneck,” from the Boston Consulting Group (BCG).
Companies in both the U.S. and Europe should evaluate how these transportation bottlenecks can affect their profits, and should possibly reconsider their manufacturing and distribution allocations, said George Stalk Jr., a BCG senior partner based in Toronto, and Kevin Waddell, a partner in BCG's Warsaw office.
Although labor and costs are much higher than in China, U.S. companies might be better off moving manufacturing operations to Mexico or even keeping them in the states, and West European companies that now source from China may want to switch all or part of their manufacturing operations to Central and Eastern Europe, said Stalk and Waddell.
According to the report, many companies fall into the trap of believing that sourcing from China will result in lower product costs. In actuality, the supply chain dynamics can, in many situations, drive up overall costs and reduce profitability.
While there is still some excess capacity at major European ports, and steps are being taken to expand capacity, the situation in the U.S. is far more serious and far more complicated - with many ports experiencing virtual gridlock. Because there is no politically viable solution, the effective result is "a giant non-tariff trade barrier," noted Stalk and Waddell.
The report suggests that companies should take a “second look” at their China outsourcing operations and offers several options including: explore shipping alternatives, such as air freight; improving the ability to move goods quickly and efficiently past congestion; and manufacturing products domestically, accepting higher production costs as a tradeoff for lower supply chain costs and reliable delivery schedules.
Click here to view the entire report.