China Sourcing "Potential Strategic Trap"
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.
“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)…