AMR Research: China Presents Most Risk to Global Supply Chains

December 15, 2008 // Published as a news service by IHS

The survey, which asked 130 global companies to measure the levels of risk they face in their global supply chains, also found that volatile fuel, energy and commodity prices are top risk factors.

Survey respondents overwhelmingly chose China as the top contributing region for nine of the 15 risks to supply chains, including intellectual property infringement, supplier and internal product quality failure and security breaches.

"This creates a dilemma for many global companies," said Noha Tohamy, vice president of research at AMR Research.

"On one hand, they continue to enjoy the advantages of cheaper material costs and labor wages in China, as well as the potential to reach vast consumer markets. But on the other, they must continually reassess the pros and cons of operating in China."

The AMR Research survey also revealed the following key findings:

• The risk of product quality failure and intellectual property violations is growing. Companies must face the constant challenge of managing product quality across their global supply chains. The risk of intellectual property infringement and the challenge to protect intellectual rights will only grow in the next few years.

• Near-shore sourcing and manufacturing is increasing. The region that will witness the greatest increase in manufacturing and sourcing activities is near-shoring at a ratio of 5 to 1. Respondents indicated they will increase sourcing and manufacturing activities in India and Eastern and Central Europe at a ratio of 3 to 1.

• Strategies to mitigate supply chain risk. The top three most successful strategies that companies execute in mitigating risk in their supply chains are performance-based contracts with suppliers or service providers, using redundant suppliers and closer collaborative relations with trading partners and dual/multi-sourcing strategies.

Source: AMR Research.