May 31, 2006

Supply Chain Risks in China

Planning for Supply Chain Disruptions in China

Companies must adequately understand supply chain risk when making global sourcing decisions. According to a reasearch report by the Logistics Institute titled "The Effect of Supply Chain Disruptions on Long-term Shareholder Value, Profitability, and Share Price Volatility", there is a direct correlation between supply chain disruptions and shareholder value. Aberdeen also reports that "best practices" including low-cost country sourcing, outsourcing, integrated supply systems, and JIT initiatives, have made companies more vulnerable to supply disruptions.

Kevin R. Fitzgerald, vice president of supply managment research at the Aberdeen Group says that while most procurement groups save at least 30% on costs when sourcing in China, some of this is lost in unanticipated supply chain costs and other costs.

The most common global supply disruptions include:

Poor quality or damaged goods (50%)
Missed or late deliveries (49%)
Unexpected increases in supply costs (47%)
Longer lead times (33%)
Supplier capacity contraints (32%)

According to senior vice president of Aen Trade Credit, experts believe the significant risks for foreign companies doing business in China include:

Possibilities of war
Legal and regulatory actions
Political interference
Supply chain vulnerability


	The Effect of Supply Chain Disruptions on Long-term Shareholder Value, Profitability, and Share Price Volatility
	Assessing Global Supply Chain Risks
	http://www.loginstitute.ca/pdf/singhal_scm_report.pdf

	The Supply Chain Risk Benchmark Report
	Supply Chain Risks are Increasing
	http://www.aberdeen.com/summary/report/benchmark/RA_SupplyRiskMgmt_TM_1970.asp

	Low Cost Country Sourcing Success Stories
	Results from US and European Companies
	http://www.aberdeen.com/summary/report/benchmark/RA_LCCS_KF.asp

	A Case for Fatter Supply Chains
	Have Supply Chains Become too Lean?
	http://www.cfo.com/article.cfm/5491636?f=related

	Monitoring China Supply Chain Risk
	Increasing Reliance on China Increases Risk
	http://www.cfo.com/article.cfm/5572829?f=related

	Yuan to Rethink Your China Supply Chain Strategy?
	Real Impact of China's Currency Decoupling from the Dollar
	http://www.sdcexec.com/article_arch.asp?article_id=7427

by Dustin Mattison

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