Supply Chain Management Conundrum: In or Out of China?
As China has risen to its current state of global economic power, so has scrutiny of supply chain operations in the Asia Pacific region. Over the past year, labor costs in some Chinese provinces have risen more than 20% and the increase is not expected to abate any time soon. Supply chain management is becoming somewhat trickier as companies reevaluate their sourcing and manufacturing. Decisions are being made as to whether it makes more sense to keep a foothold in China, return manufacturing to some U.S. states that are still known for lower cost labor, or seek out new labor sources in markets such as Vietnam, Cambodia and South America, all of which remain inexpensive for the moment, but seem to be experiencing an upward shift in labor costs as well.
The news about China isn’t all bad in terms of its effect on supply chain operations and costs. Rising Chinese wages means an increase in standard of living for the largest potential market on the planet, which consists of nearly 1 billion employed consumers. Many of those potential consumers are beginning to see a pay increase that allows for disposable income that can now be spent on products and services that would have been unaffordable even a decade ago. This new realization coupled with a similar increase in labor costs across the rest of Asia is causing companies to reconsider their strategy in China and its mostly untapped market potential.
It seems China is going through the sort of growing pains the U.S. experienced as rising wages sent manufacturing positions overseas. With that in mind, it will be interesting to watch the outcome as corporations weigh the potential benefits of gaining a firmer foothold in China, moving elsewhere or repatriating some of those positions to the United States. Obviously, managing supply chain risk is more easily done when operations are firmly planted on home soil, but time will tell whether convenience and a narrowing wage gap will send these positons back to the U.S.
In the meantime, technology is buffering some of the added costs within today’s supply chain management. Better, more efficient management translates into smoother operations and lowered costs, which is why supply chain management solutions such as transportation management software and warehouse management software are growing in popularity. As businesses continue to rely on technology to lessen financial strain, supply chain trends will be interesting to watch as companies continue to adjust to ever-shifting sourcing and labor issues.