Survey Summary

Global Outsourcing & Supply Chain RiskNew global outsourcing and supply chain risk survey uncovers key insights into companies’ current and future plans for assessing, addressing, and mitigating a broad range of sourcing and outsourcing issues.

The results of IHS and Supply & Demand Chain Executive magazine’s Global Outsourcing & Supply Chain Risk survey are in and they reveal increased organizational focus on identifying and mitigating supply chain risk, close attention to supplier viability and failure, concern over the financial impact of supply chain disruptions, and an uncertainty over the ability to recover from a major disruption.

The survey was based on input from 220 supply chain, sourcing, and manufacturing managers and executives located primarily in the U.S. and the EU. Companies represented a diverse range of sizes including a nearly-equal balance of large (in excess of $1 billion in annual revenues), midsize, and small organizations. Similarly, they very evenly represented a broad range of manufacturing, healthcare, and transportation/logistics sectors. Respondents shared internal information on supply chain risk measurement, their companies’ level of preparation for disruptive events, and their current and future sourcing/outsourcing strategies.

Supply Chain Risk Mitigation Strategies

Supply chain risk and financial impact of disruption are on the rise

When asked to rate the importance of supply chain risk mitigation strategies on a scale of 1-10, most participants (72 percent) said between 7 and 10, with 18 percent calling such initiatives “critical.” About 68 percent indicate that supply chain risk is increasing.

Figure 1: Scale indicating the significance of supply chain risk mitigation within 2014 operational plans

Figure 2: Dual threat of increased supply chain risk and financial consequence from disruption

Survey Summary

Beyond the obvious concern of this finding, it is extremely ominous considering that two-thirds also say that the financial impact of supply chain disruption is also rising. As for their experiences, since 2011 alone, most survey respondents (60 percent) have experienced between one and five supply chain disruptions that have materially impacted operations. Not surprisingly, most of the companies surveyed (81 percent) have been subject to reactionary discourse as a result of these disruptions.

Supplier risk and modest risk preparedness still the norm

For 2014, respondents say their top global supply chain concerns are supplier volatility or failure, followed by weather and commodity volatility. Less than 5 percent of companies are fully prepared to manage such disruptions, just 2.4 percent feel “completely prepared,” and 25 percent rank their organizations below the midway point on this scale. In light of catastrophes like the garment factory collapse in Bangladesh, 63 percent of firms are incorporating safety and treatment of workers into their sourcing decisions.

China still a wild card for economic, labor, and material volatility

When asked what other economic or disruptive events are of concern right now, respondents said regulations, sub-tier supplier management/control, politics/geopolitics, and delivery performance/integrity are top of mind. Primary sourcing options include the U.S. (for 66 percent of companies), followed by the EU (32 percent) and China (32 percent). Companies see China as having the most potential for economic, labor, and material volatility.

Sourcing & Outsourcing Strategies

Companies are almost exclusively dependent on outsourced operations

Currently, 78 percent of the organizations surveyed outsource labor, materials, finished goods, and/or manufacturing to third parties, while just over half obtain about 40 percent such goods and services from other regions.

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Figure 3: Disruptions faced by organizations are real and materially impact their operations

Figure 4: Scenarios posing the greatest concern to supply chain organizations

Figure 5: Perspectives on whether or not China remains a low-cost option the next 12-24 months

Survey Summary

Only 1.5 percent fully outsource manufacturing and roughly one in every 10 firms manufacture between 60-99 percent of their products in other regions.

China’s low-cost status is now in question

While China remains the low-cost frontrunner for sourcing and outsourcing, about 46 percent of companies say the opposite is true. The top three countries where companies source or manufacture goods today include the U.S. (59 percent), China (42 percent), and the EU (38 percent). Over 50 percent of firms expect to maintain their sourcing/outsourcing strategies in 2014. Those that plan to increase sourcing and manufacturing will do so within the U.S. (48 percent), in China (33 percent), or in other Asia/Pacific Rim countries (27 percent).

Regulations are influencing outsourcing strategies

A clear influencing factor on outsourcing decisions was the role played by regulations according to written commentary submitted by survey respondents. This was also apparent in risk-related concerns. As one supply chain professional put it, “[I am concerned about] disruptions due to additional governance and legislation put upon suppliers by our U.S. government (like Buy America and Conflict Minerals) that impede suppliers ability to provide their goods at a reasonable price.”

China plays dominant role in most supply chains

When asked where organizations plan to decrease sourcing and manufacturing over the next five years, the U.S., the EU, and China topped the list. These three global regions are, however, also of most interest for sourcing and manufacturing right now – including China (16 percent), the U.S. (15 percent), and the EU (13 percent). Looking specifically at China, the survey found that nearly two-thirds of all respondents (67 percent) plan to use the country as a source of supply.

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Figure 6: The planned role for China within companies’ sourcing and outsourcing strategies

Figure 7: Primary criteria for companies increasing China’s role within sourcing/outsourcing strategies

Figure 8: Primary criteria for companies decreasing China’s role within sourcing/outsourcing strategies

Survey Summary

China Strategies

China is a mixed bag for supply chain strategies

In assessing their companies’ Chinese sourcing and manufacturing strategies, 34 percent of survey respondents say they’re buying materials there to support manufacturing elsewhere, 30 percent are buying finished goods to sell in other markets, and 19 percent are operating manufacturing facilities in the country. Clearly, China remains a region of great interest among supply chain and sourcing professionals, nearly 60 percent of which rate their interest in the 7 to 10 range (on a scale of 1-10).

Cost the primary driver for China but other issues are revealing themselves

Concerns like quality issues (63 percent), price inflation (45 percent), and wage growth (41 percent) persist for companies doing business in China, most of which (73 percent) either plan to increase or maintain current levels of outsourcing to the country. Lower cost remains the clear driver for 53 percent of firms deciding to increase their presence in China.

U.S. plays a key role in strategies for both, moving toward and away from, China

Of those companies planning to increase their presences within China, most will move away from the U.S. (31 percent), Mexico (19 percent), and Brazil (14 percent) in order to do so. And for those firms that are decreasing their presences in China, many will be moving to U.S. (23.5 percent) and Mexico (20.6 percent). India, Eastern Europe, and Malaysia were among the top five destinations. Most indicated that they are exiting China in order to move operations closer to home, diversify suppliers and operations, and transfer manufacturing and/or sourcing to what they see as a lower-cost region.

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