The elephants in the China room

Posted on 27 May 2009 by The Manufacturer

The risk of sourcing and manufacturing in China is increasing rapidly as a result of intellectual property infringement, quality failures, and regulatory compliance, according to findings from AMR Research.

“Concerns with China’s product quality and safety record continue to rise from quarter to quarter,” said Noha Tohamy, vice president of research at AMR Research and author of the report. “This will ultimately limit China’s play in high-value, labor-intensive manufacturing outsourcing.”
Respondents from the quarterly survey of U.S. based manufacturers and retailers identified the top supply chain risks.

They were:

• China contributes the most risk in 12 out of the 15 categories of risk identified in the report. Out of the 12 risks, respondents cite China as contributing the most to intellectual property infringement (said 59% of all respondents), product quality failure (55%), and regulatory compliance (34%). Last quarter China contributed the most risk in 10 out of 15 categories.

• Supplier failure topped the list of most significant supply chain risks this quarter. In the current economic situation, 38% of respondents identified it as the top risk, with only 8% expecting the risk to decrease over the next year.

• 36% of respondents cited commodity price volatility as the second highest risk, showing that manufacturing executives may be happier with stability over low prices.

• The No. 3 risk was internal product quality failures, much of which can be attributed to manufacturing in China.

• Lower consumer spending as a concern dropped 8% and a majority of respondents (66%) expect consumer spending risk to stabilize or decrease over the next year.

See for a summary of the supply chain risk report. Full analysis of the survey results will be available in June.