Travel/quarantine changes; technology’s impact; tariffs; logistics and regional risk mitigation: a lot has happened these last few months in the China region, and Complete Manufacturing and Distribution President Paul Stepanek has the scoop on your most-asked manufacturing and distribution issues.
Time for Some Face to Face
My plane was loaded with people who “hadn’t been to China in 3 years” and were anxious to bridge any leadership and communication gaps that grew in the absence of those all-important face to face exchanges. There was a flurry of excited anticipation as business gears engaged and relationships started to mesh once again.
China stopped its “zero covid” policy in January 2023, so no further need to quarantine on arrival. Since March 15th China also resumed issuing visas to foreign tourists for the first time since the pandemic began. Perhaps more importantly, the previous visas that had been placed on a temporary hold became valid again (https://www.bbc.co.uk/news/world-asia-china-64948594).
Now is the time to re-engage with your China teams and supply base – face to face. Don’t underestimate the need to build – or rebuild – strong relationships with suppliers to reduce costs, improve quality, and ensure timely delivery. Collaborating with suppliers can help identify potential risks and develop contingency plans to mitigate them.
The latest technology innovations, such as blockchain, artificial intelligence (AI), and the Internet of Things (IoT), can greatly enhance supply chain efficiency, visibility, and transparency. Although understanding the details of how these innovations work may be “beyond our pay grade,” we have witnessed their very tangible improvements to traditional manufacturing automation during these last few years. It’s kind of like the long-distance relatives who have not seen their family for a few years: “Look at how they’ve grown! See how they’ve changed!”
Utilizing new or better technology has enabled factories to balance an increasingly expensive (and unreliable) labor market with automation improvements and begin to reverse the 30-50% year-over-year decline. This uptick in activity is the equivalent of those relatives saying “My oh my – you have grown so tall!” …with a pinch on the cheek.
Who hasn’t experienced a CFO banging on the table (figuratively) to make the point about needing some cash to run the business? Therefore, it’s logical to optimize logistics, and by that, we’re talking strategies to minimize transportation costs, improve delivery times, and reduce inventory levels.
Employing advanced logistics software can help you make informed decisions on better transportation modes and routes, optimized load capacity, and improved scheduling and routing. As your brand owners work their way through high inventories accumulated during (anticipated) pandemic shortages, consider keeping a trickle of orders going to the factories you rely on, to keep the machines running and their labor force’s brains engaged in your business. If not, you may find yourself facing a slow and bumpy road when you need them to restart production.
Now more than ever, businesses are seeing the critical need to proactively monitor risks to their regional supply chain: political instability, natural disasters, cybersecurity threats, and other potential disruptions. Having a well-thought-out risk mitigation contingency plan in place will help you maintain continuity of supply.
China Déjà Vu?
The expiration of the Generalized System of Preferences, or GSP, in December 2020 meant that more than 100 countries lost tariff-free access to the U.S. market for thousands of goods, from travel bags and jewelry to car parts and lamps. The GSP program has expired more than a dozen times since it came into force in 1975, but has usually been swiftly renewed. This time, however, renewal has been complicated by political wrangling over how to decide which countries should be eligible for GSP benefits and procedural hurdles linked to broader disagreements in Congress over trade and China.
More broadly, executives and trade experts say, the failure to renew the GSP is an avoidable flaw in U.S. trade policy toward China that risks denting investment in countries that show promise as alternatives for manufacturing outside China’s vast factory floor. Having a better understanding of the consequences – pro and con – of the current state of the GSP program is a necessity for your business if you are experiencing surging costs and considering hard choices about where to manufacture.
And that leads to…
In Asia for Asia? In Europe for Europe? Regionalizing the supply chain can help you reduce costs, improve delivery times, and reduce the risk of supply chain disruptions. By sourcing materials and products from suppliers closer to the end market, you can reduce transportation costs and improve responsiveness to changes in demand. Regionalization can also help you better understand local regulations and cultural differences, which can be critical to your success in Asia.
If your travel plans include China and the region, come see us for a chat. We’d love to compare notes on supply chain issues and see how we can help.
Paul Stepanek, President, Complete Manufacturing and Distribution