Risks of sourcing, manufacturing in China increasing

AMR Research, a leading research firm focused on the global supply chain and its supporting technologies, released a report on May 21 that found the risk of sourcing and manufacturing in China is increasing rapidly as a result of intellectual property infringement, quality failures and regulatory compliance.

"Concerns with China's product quality and safety record continue to rise from quarter to quarter," said Noha Tohamy, vice president of research at AMR Research and author of the report. "This will ultimately limit China's play in high-value, labor-intensive manufacturing outsourcing."

Respondents from the quarterly survey of U.S. based manufacturers and retailers identified the top supply chain risks, where and why they source and manufacture, and how they mitigate risks.

Supply Chain Risks

·        China contributes the most risk in 12 out of the 15 categories of risk identified in the report. Out of the 12 risks, respondents cite China as contributing the most to intellectual property infringement (said 59 percent of all respondents), product quality failure (55 percent), and regulatory compliance (34 percent). Last quarter, China contributed the most risk in 10 out of 15 categories.

·        Supplier failure topped the list of most significant supply chain risks this quarter. In the current economic situation, 38 percent of respondents identified it as the top risk, with only 8 percent expecting the risk to decrease over the next year.

·        Thirty-six percent of respondents cited commodity price volatility as the second highest risk, showing that manufacturing executives may be happier with stability over low prices.

·        The No. 3 risk was internal product quality failures, much of which can be attributed to manufacturing in China.

·        Lower consumer spending as a concern dropped 8 percent and a majority of respondents (66 percent) expect consumer spending risk to stabilize or decrease over the next year.

Sourcing and Manufacturing: Where and Why?

·        A total of 49 percent of companies source from and manufacture in the U.S. and 14 percent source from and manufacture in China.

·        Companies are continuing to look near-shore for sourcing and manufacturing, with three times as many respondents planning to increase activity vs. decrease.

Visit www.amrresearch.com for a summary of the supply chain risk report. Full analysis of the survey results will be available in June. If you are a member of the media and are interested in learning more about the report, contact amrresearch@famapr.com.