With the uncertainty and unprecedented changes brought about from COVID-19, manufacturers are re-evaluating their global supply chains.
A 2020 PwC survey found that 16% of U.S. companies operating in China were already planning to adjust production and/or supply either domestically within China and partially outside of China – or completely out of China.
But the virus has pushed this trend even further and in a recent analysis by PwC of U.S. Mexico, China and other Asian low-cost countries (LCC) finds that other more attractive supply-chain options for fulfillment outside of China are now on the table. The analysis was based on numerous factors, including landed cost, risk, and fulfillment lead times.
The study estimates that U.S. manufacturers who choose to shift production from China could cut operating costs, on average, by an additional 23% if they near-shored to Mexico, and by 24% if they shifted to another Asian low-cost country (LCC). “We believe these and other alternatives could – on top of these cost savings – also add resiliency and improve customer experience,” Pwc says.
Other viable and competitive LCCs, particularly in southeast Asia, have significantly improved their supplier bases and manufacturing labor forces, making them a more attractive option than just three years ago.
And for North American manufacturers, Mexico is increasingly poised as an attractive option to China, especially for U.S. market sales, given the new USMCA going into effect on July 1, 2020.
Some key findings from the analysis include:
Other Asian countries pose alternatives to China
80% of manufactured imports from China could capture cost efficiencies if produced in other Asian LCCs.
Mexico an attractive dual sourcing option
Dual sourcing scenarios (e.g., China + Mexico or Another Asia LCC + Mexico) could yield savings of 5-20% vs. sourcing and/or producing only in China.
US CFOs are looking to reassess global footprint
A PwC survey found 47% of CFOs across industries agreed to develop additional, alternate sourcing options was a pressing issue during the COVID-19 pandemic.
