Global Outsourcing and Supply Chain Risk

Companies around the world are nearshoring, led by North America

The latest results from Supply & Demand Chain Executive magazine and IHS’ Global Outsourcing and Supply Chain Risk survey confirm the results from the 2012 and 2013 surveys. More than two-thirds of companies view the mitigation of supply chain risk as significant to their operational plan. Companies around the world are nearshoring, led by North America. There are some companies moving away from China as a sourcing location, but on net, the country is still growing its importance in supply chains.

More than 69 percent of supply chain professionals believe the financial impact of supply chain disruptions are increasing and yet just 27 percent are prioritizing supply chain risk mitigation as the most important part of their operational plan this year compared to nearly 40 percent last year. IHS and Supply & Demand Chain Executive surveyed more than 500 business leaders from a broad background to take their pulse on the latest trends in supply chain risk, share the latest insights on best practices in supply chain organization and update the outlook on sourcing in China.

Supply Chain Risk Mitigation Trends

Supply chain risk concerns and sourcing locations still not aligned

Although consciousness of supply chain risks and concerns about the financial impacts are on the rise, these insights did not yet fully translate on the risk mitigation front. China is considered the most volatile cost location, but is also the third most common sourcing location. Canada is the least volatile cost location, but is also the least common sourcing location. Despite the rising impacts of doing so, companies are still prioritizing low cost over low risk.

Regional Sourcing Trends

Asia and North American Free Trade Agreement (NAFTA) regions are the winners from latest supply chain adjustments

Rising energy costs in Europe and the shale gale in the United States pushed companies to increase their sourcing in the United States and Mexico. In fact, Mexico saw the greatest net inflow of any country in our 2013 survey and remains in the top three this year. Asia and, in particular, India, is the other pillar of growth. Figure 2 represents the net results of companies responding that they are increasing or decreasing their sourcing presence in these respective countries. Rising regulations and falling economic prospects caused a drastic pullback in South America, with the region barely seeing a net increase in sourcing this year, despite being in the top three regions in 2013.

China Sourcing Trends

As with overall trends, the United States and Mexico also gain the most from companies leaving China

Although sourcing trends still favor China as a low-cost region, a number of companies are looking elsewhere. Unsurprisingly, given their prominence in overall sourcing growth trends, the United States and Mexico stand to gain the most from companies leaving China. In fact, the only other country to show a net gain from movement into and out of China is Indonesia, a rising source for low-cost production. On the other hand, economic growth hiccups and currency risks are leading many companies to reevaluate India as a viable alternative to China. Figure 3 represents the net share of respondents answering the sourcing destination as a result of moving to or moving away from China. Despite the strong inflows outlined in the previous section, India actually sees a net loss of companies going to China. 

China was not displaced as the hub of global manufacturing supply chains, but the United States is seeing a renaissance and Mexico is coming of age as a stable, low-cost sourcing location. These moves reflect the lagged impact of a reevaluation of supply chains in light of rising financial costs from disruptions and will guide supply chain professionals in the years to come. 

Although more than 75 percent of the companies were based out of the United States or Europe, their operations were scattered globally. The survey was similarly broad in the industries and company sizes surveyed, with no single industry accounting for more than 10 percent of the responses. This broad scope offers the best assessment of the current outlook from supply chain managers, reducing the impact of industry-specific dynamics.