AFTER CHINA, WHERE NEXT FOR THE FAR END OF THE GLOBAL SUPPLY CHAIN?

The signs are there…

…increasing levels of Chinese coal stocks …the brakes on in Australia’s resources boom – in particular, the reduced demand for iron-ore… Falling demand for raw materials and energy do not tell a lie. China is slowing down.

China’s recently developed middle-class consumer led economy provides a number of indicators that the global supply chain may have to look elsewhere for a powerhouse manufacturer.

Growing wage demands, labour shortages and inflation all mean China’s manufacturing juggernaut is looking less attractive to those running supply chains with a far end in China. This forces wholesale distribution businesses which have been attracted to China to seek manufacturing services elsewhere.

Replacing China as the far end of the supply chain

If there is a ‘direct replacement’ for China, out of the remaining BRIC economies, India seems to be a likely candidate given its huge population and low labour costs. However it seems unlikely that China can be unplugged and India slotted in ‘just like that’. One barrier that may retard the process is that India’s democracy is probably not as suited to facilitating wide scale industrialisation as China’s one-party system.

U.S. Dept of Labor statistics released at the end of 2011 are a little patchy and acknowledge that it is difficult to draw direct comparisons between labour compensation rates in different countries. However they do seem to indicate that Brazil’s manufacturing labour costs appear to be over 7x that of China.

In the absence a direct ‘plug-in’ replacement for China, it seems that the global supply chain will need to diversify its far end points base, relying less on China and sharing contracts around other developing economies that have been trailing in China’s wake for the past decade.

The Philippines and India are the two lowest cost labour markets in the data, however using the lowest cost labour may not always translate into the lowest total landed cost (TLC) for goods. Getting total visibility on the many other factors that influence TLC mean that every wholesale distributor must have access to real time information from across its supply chain if it is to operate efficiently and not bleed profit.

NetSuite enables you to see where next after China

NetSuite ERP provides fingertip access to the real-time information every supply chain manager needs to maximise efficiency and profitability. Leveraging cloud computing means that all managers, anywhere in the world can get access to the data they need to make the decisions that matter. NetSuite enables you to analyse and assess which region or territory best suits your business. It could it be that now is the perfect time to bring it on home and repatriate your manufacturing to the UK. We can help you find out. Why not click here and register for a 14-day FREE trial of NetSuite with BlueBridge One?