China Sourcing "Potential Strategic Trap"

Boston Consulting Group Study

It took a major strategy firm and some “simulations” to convince some folks that transporting manufactured goods from China can be slow and risky. Imagine that!

Congestion at North America’s West Coast ports and continuing capacity problems at major European ports have complicated the China sourcing equation to such an extent that companies need to consider alternatives, say experts at The Boston Consulting Group.

I hope this news gets splashed on the front page of the WSJ and the covers of Business Week, FORTUNE, and even Moldmaking Technology. I hope BCG makes a lot of money telling companies to consider strategies other than racing to China.

With no solution in sight, they say, many U.S. companies may be better off manufacturing in Mexico or at home, though labor and other costs are significantly higher than in China. Similarly, West European companies that now source from China may want to switch all or part of their manufacturing operations to Central and Eastern Europe.

As Jim Womack says, “what’s wrong with Mexico?” Either Mexico or the U.S. can better fit into a Lean strategy where fast time-to-market or fast delivery is important. A self-serving exception to this might be the iPod Nano that our sponsor Ledgible.com purchased for our LeanBlog Contest (ending May 18). The iPod came from China to Texas in just three days, even with custom engraving… but unless your product is that small and that light, you might want to consider closer sourcing.

The BCG article cites a Waddell who is not Bill Waddell, not sure if there is a relation:

“In their rush to source from China,” Stalk and Waddell write in the newly published BCG report, Surviving the China Riptide: How to Profit from the Supply Chain Bottleneck, “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.”

It’s great that the fancy consultants are finally catching up to the Lean “common sense” that we preach about here, on Evolving Excellence, and other Lean blogs. Building in China may make perfect sense for China customers. But maybe not for European or North American customers. It’s time to look at more than just labor cost (and China’s labor costs are rising anyway)…

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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3 Comments on "China Sourcing "Potential Strategic Trap""

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  1. Richard Hertz says:

    Taking America Back

    The recent uncovering of the Chinese lead paint, the defective tires, the poisoned pet foods, and the toothpastes tainted with anti-freeze, are only the slightest tip of the iceberg of the damage China is causing inside the United States.

    The Chinese penetration of the US manufacturing base over the last decade with its cheaply manufactured goods is now a national security threat.
    The US military, once the strongest in the world, backed by our machine shops, our fabrication shops, and our broad industrial base is eroding at a rapid rate, while the Chinese strengthen their military and industrial base at US expense.
    Finally there is some good news to report on this front.
    A few years ago in Wisconsin, one of the country’s brightest industrial minds, Allen Schlicke, put together a group of companies, each with specific core competencies in areas such as large boring bar work, production CNC machining, stampings, tool making, and screw machine work to name a few, to turn things around.
    These companies offered better than the norm pricing in their areas of specialization and were brought to market in Wisconsin and Illinois.
    Since that time hundreds of companies have purchased from this group and have had their costs reduced on domestically purchased commodities.
    This is the first and greatest positive response to the communist attack on our manufacturing base.
    With a heightened sense of awareness throughout the US manufacturing sector, more companies will discover less expensive domestic suppliers for their own purchased goods and become less dependent on the growing Chinese military-industrial base, which has now become a very real and serious threat to the United States economy.

    USCC.gov

    Cox Reporty

    Epoch Times

    China Support.net

    Under U.S. law, products of forced labor should never make their way to the American shores. Since 1983, it has been illegal to import goods made by forced labor into the United States.

    House.gov

    LA Times

  2. Anonymous says:

    Most of the developing countries labor force is “forced labor”
    Nobody cares and nobody does anything about it.

  3. Anonymous says:

    Looks like Hertz is right.
    Not only are the Chinese bolstering their military from the money gained from the US,they are also the largest contributor to global warming through industrial toxins while leaving the rest of the world to pick up the tab.
    It’s interesting that on Feb. 11th of 2008 the Chinese were again caught purchasing military secrets in New Orleans.
    http://www.ibtimes.com/articles/20080211/space-shuttle-defense-secrets-stolen-for-china.htm
    Wake up people.

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