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Third of supply chain leaders re-evaluating China operations

33% of supply chain leaders globally have either moved sourcing and manufacturing activities out of China or plan to do so in the next two to three years, with the COVID-19 pandemic just one of several disruptions cited that have put global supply chains under pressure.

That’s according to new research from Gartner, which surveyed of 260 global supply chain leaders in February and March 2020 across a range of industries, including high-tech, industrial and food & beverage, in North & South America and the EMEA and APAC regions.

“Global supply chains were being disrupted long before COVID-19 emerged,” said Kamala Raman, senior director analyst with the Gartner Supply Chain Practice. “Already in 2018 and 2019, the U.S.-China trade war made supply chain leaders aware of the weaknesses of their globalized supply chains and question the logic of heavily outsourced, concentrated and interdependent networks. As a result, a new focus on network resilience and the idea of more regional manufacturing emerged. But this kind of change comes with a price tag.”

For decades, China has been the go-to destination for high-quality, low-cost manufacturing, and it has established itself as a key source of supply for almost all major industries including retail and pharmaceutical. However, Gartner research showed that the margin between those companies planning to add jobs in China versus taking them away narrowed sharply in 2019. The primary reason is the increase in tariff costs.

“We have found that tariffs imposed by the U.S. and Chinese governments during the past years have increased supply chain costs by up to 10% for more than 40% of organizations. For just over one-quarter of respondents, the impact has been even higher,” Raman said. “Popular alternative locations are Vietnam, India, and Mexico. The second main reason for moving business out of China is that supply chain leaders want to make their networks more resilient.”

Only 21% of survey respondents believe that they have a highly resilient network today – meaning that they have good visibility and the agility to shift sourcing, manufacturing and distribution activities around quickly. However, 55% expect to have a highly resilient network in the next two to three years – a reaction to disruptions such as Brexit, the trade war and COVID-19.

However, resilience has a price. Fifty-eight percent of respondents agree that more resilience also results in additional structural costs to the network.

“We are at a crossroads in the evaluation of global supply chains that pits just-in-time systems designed to improve operational efficiency against just-in-case plans that emphasize planning and preparing for a range of plausible scenarios,” Raman added. “To find balance, supply chain leaders must engage in risk management to assess their organization’s willingness to take risk onboard and decide how to quantify that risk against other network objectives such as cost effectiveness.”

One-quarter of survey respondents stated that they have already regionalized or localized manufacturing to be closer to demand. Despite the cost of adding more players to the ecosystem and increasing the overall network complexity, regional supply chains can ease delays and shortages in times of disruption – if the model is economically viable.

“Many Western organizations will have to explore new forms of automation on the factory floor to decrease the costs of near- or onshore production. Some also favour a partial option, such as manufacturing in Asia and moving only the final assembly closer to the customer,” Raman concluded.

Image by wei zhu from Pixabay 

Unilever tops Gartner Supply Chain Top 25

Gartner has released the results of its annual Supply Chain Top 25, identifying supply chain leaders and highlighting their best practices.

Unilever scored the top spot for the third year in a row, followed by Inditex, Cisco, Colgate-Palmolive and Intel.

Home Depot rejoined the ranking after a three-year hiatus, while Novo Nordisk and Adidas joined the Supply Chain Top 25 for the first time.

Longtime supply chain leader and last year’s runner-up McDonald’s joined Apple, P&G and Amazon in qualifying for the “Masters” category, which Gartner introduced in 2015 to recognize sustained leadership over the last 10 years.

Along with the “Masters” category, the Supply Chain Top 25 is designed to offer a platform for insights, learning, debate and contributions to the rising influence of supply chain practices on the global economy.

Rank

Company

Peer Opinion1
(184 voters)
(25%)

Gartner Opinion1
(42
voters)
(25%)

Three-
Year Weighted ROA2
(20%)

Inventory Turns3
(10%)

Three-
Year Weighted Revenue Growth4
(10%)

CSR Component Score5
(10%)

Composite Score6

1

Unilever

2,413

667

10.3%

7.5

2.6%

10.00

6.36

2

Inditex

1,254

345

16.5%

3.9

10.9%

10.00

4.85

3

Cisco Systems

785

541

7.9%

13.1

-0.4%

10.00

4.41

4

Colgate-Palmolive

898

324

17.6%

5.1

-2.2%

10.00

4.40

5

Intel

831

499

8.9%

3.6

4.8%

10.00

4.36

6

Nike

1,349

270

17.4%

3.8

6.8%

6.00

4.25

7

Nestlé

1,326

426

6.4%

4.8

-0.2%

10.00

4.21

8

PepsiCo

1,094

391

7.3%

8.8

-0,6%

10.00

3.99

9

H&M

760

193

18.1%

2.8

7.8%

10.00

3.96

10

Starbucks

1,040

186

20.4%

11.8

9.2%

4.00

3.85

11

3M

783

198

14.0%

4.1

1.4%

10.00

3.56

12

Schneider Electric

737

410

4.8%

5.2

-0.5%

10.00

3.55

13

Novo Nordisk

121

49

37.9%

1.2

5.3%

10.00

3.37

14

HP Inc.

390

354

7.3%

8.4

0.2%

10.00

3.30

15

L’Oréal

999

210

9.6%

2.9

4.6%

8.00

3.26

16

Diageo

651

227

9.2%

1.0

7.6%

10.00

3.25

17

Samsung Electronics

907

117

10.7%

14.6

9.8%

9.00

3.22

18

Johnson & Johnson

880

322

6.2%

2.7

2.8%

6.00

3.08

19

BASF

470

281

6.9%

4.4

-0.5%

10.00

3.02

20

Walmart

1,416

256

6.2%

8.3

1.6%

3.00

2.98

21

Kimberly-Clark

619

133

13.6%

6.7

-1.6%

8.00

2.96

22

The Coca Cola Co.

1,558

221

4.6%

4.8

-10.1%

4.00

2.87

23

Home Depot

431

78

18.6%

5.1

6.7%

5.00

2.81

24

Adidas

821

115

6.8%

2.9

13.5%

7.00

2.58

25

BMW

679

118

4.1%

4.2

6.0%

10.00

2.45

“2018 is the 14th consecutive year, we are publishing the Supply Chain Top 25 ranking,” said Stan Aronow, research vice president at Gartner. “The ranking consists of an impressive group of leaders with valuable lessons to share, including three recent entrants from the life sciences, retail and consumer products sectors.

“Looking back at 2017, we experienced a year of healthy growth, despite heated trade rhetoric. Now, in 2018, protectionism is spreading in response to announced moves by the U.S. and the U.K., among others. This has led many organizations to re-evaluate the location strategy for their supply networks. We also see strong growth constraining available supply in many geographies, increasing the cost of logistics and labor. The most advanced supply chains are proactively managing these risks and continue to post solid performances.

Gartner says Unilever has a strong supply chain brand, which is reflected by its top-tier opinion poll score. It also received a perfect 10 for corporate social responsibility (CSR).

“The Dutch consumer products leader is making big bets in the digitization of its supply chain,” said Aronow. “A key initiative is robotic process automation (RPA) supporting the order-to-cash process, run from its regional service control towers. Its more than 20 ‘bots’ have already automated hundreds of processes, with a roadmap for hundreds more.”