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From Site Selection magazine, July 2020

Survey Reveals Manufacturers’ Post-Pandemic Plans

Supply chain managers are recalibrating a moving target like never before.

COVID-19 Special REPORT: Supply Chain Disruption
by Mark Arend

Few implications of the COVID-19 pandemic are as consequential to global manufacturers as disruptions to their supply chains. For many, this is the most consequential by far. Supply chains are always a work in progress as such market variables as transportation costs, tariffs and trade agreements force logistics managers to tweak their supply chains a little here, a lot over there and everywhere in between. That’s under normal conditions. Add a global health pandemic originating in the world’s second largest economy and the largest in industrial output, and it’s a whole new ballgame.

Even as Western and other companies resume operations in China, most are still reeling from the human resources, cash flow, market demand and other challenges precipitated by the pandemic. In short, they are reassessing their risk management strategies on a scale most have not had to do since the global supply chain disruptions caused by the 2011 Tōhoku earthquake and tsunami.

Who’s doing what in this rescue-and-recovery phase of the global pandemic? A good place to start is analysis of a recent survey of more than 150 Western companies with manufacturing and sourcing operations in China conducted by East West Associates (EWA), a consultancy specializing in risk management, manufacturing footprint and supply chain optimization and strategic business planning, among other areas. The firm has offices in the U.S. and Asia and focuses mainly on China, Southeast Asia, Mexico, the Czech Republic and Poland.

Following are the survey questions and results, followed by analysis of the findings with three of EWA’s principals.

What have been the biggest challenges of resuming operations in China, following the coronavirus lockdown? (Choose up to 3)

  • 64% Supply Chain Disruption
  • 63% Decreased Product Demand from Customers
  • 62% Logistics Disruption
  • 52% Manufacturing Disruption
  • 14% Cash / Liquidity to Maintain Operations
  • 9% Not All Employees / On-Site Senior Executives Have Returned to China-Based Operations

What actions has your company taken to mitigate the challenges of resuming operations in China, following the coronavirus lockdown? (Multiple Responses Possible)

  • 56% Identify & qualify alternative vendors / Purchase finished components and goods from alternative manufacturers / Identify & qualify contract manufacturers / Shift components and raw materials from other company facilities
  • 46% Identify & qualify alternative logistic partners / Establish expedited freight agreements / Renegotiate warehousing and consignment agreements
  • 24% Pricing discounts / Renegotiate customer agreements / Sales incentives for customers
  • 22% Shift production to other company plants /Decrease factory production / Factory consolidation / Discontinue product lines
  • 15% Alternative payment strategies (pre-payment, extended payment terms, renegotiated vendor terms, etc.)
  • 14% Other
  • 7% Market research of growth potential (new markets, adjacent verticals, etc.)
  • 5% Hire new or temporary employees / Hire interim executives / Transfer executives from other sites / Employee and leadership training

What impact have these actions had on mitigating the challenges of resuming operations for your company?

  • 46% Partial improvement
  • 34% Significant improvement
  • 17% Too early to tell
  • 3% No improvement

What impact has the coronavirus had on your company business planning?

  • 9% No impact: Focus on dealing with the present situation in China
  • 6% No Impact: Too early to begin with long-term business planning
  • 39% Moderate to Significant impact: Increased focus on performance improvement and process optimization of China-based operations due to product consumption being primarily in China. Although no confirmed strategies could be identified due in part to the current market volatility, there were clear indications:
    • Digitalization (automation, Industry 4.0) will likely be the key driver of change for manufacturing, supply chains and logistics.
    • Company restructuring, factory consolidation and M&A will likely also play significant roles in driving change.
  • 46% Moderate to Significant impact: Increased focus on global relocation of China-based operations to diversify risk and reduce dependency on China. When asked what part of their China operations they are planning/considering to relocate out of China, the respondents indicated the following breakdown:
    • 50% sourcing operations
    • 45% manufacturing & sourcing operations
    • 5% manufacturing operations

To where are you considering or planning to relocate your China-based operations, as a direct result of the coronavirus? (Multiple Responses Possible)


  • 74% Asia
  • 53% Mexico
  • 37% USA
  • 21% Other
  • 11% Central Eastern Europe

In addition to the coronavirus, how would you rank the negative impact of the following factors upon your business? (5 = greatest impact, 1= least impact)

  • 27% US/China tariffs
  • 19% Strong domestic Chinese competition
  • 18% Increased Chinese labor rates
  • 18% Slowing China economy
  • 18% Transparency, IP loss, etc. in China

What do these results mean? For analysis, Site Selection turned to EWA consultants for their insights into what lies behind the survey findings. All three — EWA President Alex Bryant and Directors Mark Plum and Dan McLeod — have extensive experience on the ground in China and Southeast Asia, among other locations, working with manufacturers on every aspect of their operations with an eye to optimizing those operations and mitigating risk wherever possible.

Site Selection: Supply chain disruption (64%) and logistics disruption (62%) are among the biggest challenges to survey respondents. How do these challenges differ? Did respondents indicate specific issues around these challenges?

Mark Plum: The survey respondents felt the total supply chain was severely disrupted. When questioned in detail, their feeling about the supply chain disruption was related to (1) operational disruption, either their component suppliers in China were shut down due to the virus or their own manufacturing facility in China was shut due to the virus; and (2) under logistics disruption the respondents were particularly frustrated by the inability to book/obtain space with ocean and air freight carriers as many of these carriers were unable to receive approvals to transit to specific countries.

Site Selection: Regarding actions companies are taking, the highest percentage of respondents (56) indicated working with alternative vendors, manufacturers, etc. What kinds of alternatives are they looking for — companies located outside of China? Companies better able to respond to situations like the pandemic?

Alex Bryant: For companies whose end market is outside of China, they are actively trying to diversify their supply chain base to vendors outside of China to eliminate the cost of U.S.-China tariffs, lessen their supply chain dependence on China and potentially identify better pricing.

For companies whose end market is China, their vendor and manufacturing base in China may have closed, so they are identifying and qualifying alternative vendors who could provide products more quickly than their current vendors. Additionally, the economic conditions in China have exposed some Chinese vendors with poor financial backing, forcing their customers to qualify alternatives.

Many companies have been sourcing raw material, components and finished goods in China. Prior to the coronavirus, these companies were working to diversify their supply chain and manufacturing footprints because of rising China labor rates, a tougher domestic market, a slowing Chinese economy, U.S.-China tariffs and other factors.

Photo: Getty Images

However, the onslaught of the coronavirus has significantly forced companies to accelerate these diversification efforts. The coronavirus has been like adding gasoline to a bonfire for companies looking to diversify their supply chain and manufacturing risks, including evaluating alternative locations like Asia, Mexico and the U.S.

The coronavirus and economic situation of China is changing how companies are viewing supply chains. In secure economies, many manufacturers operated their supply chain using lowest-cost vendors, and many carried minimal inventory levels. This supply chain approach is a real problem amid the current economic disruption.

Going forward, many companies will be evaluating their supply chain in terms of how effectively they can resist a future disruption and secondly, how their supply chain performs after a future disruption occurs.

Site Selection: Approximately 50% saw partial or no improvement from the actions they are taking to mitigate the challenges. Will this figure increase with time? Did they set their expectations too high?

Dan McLeod: Re-allocating production across a factory network, identifying alternative suppliers, changing logistics partners, rapidly responding to changes in demand are complicated and difficult to execute in the best of circumstances, and often run counter to the drive to minimize costs by reducing redundancy, minimizing inventories and manufacturing in a low-cost country. It is understandable that many companies did not achieve the results they were hoping for in a short period of time. It will take a while to figure out the most impactful tactics for achieving a more resilient supply chain.

But there have certainly been successes. One company we spoke with moved up a planned change of logistics services partners to take advantage of a superior digital platform for freight management, scheduling and tracking of import orders from Asia. The pandemic resulted in a sudden increase in demand for their products, and the existing processes for managing imports were overwhelmed. The move was implemented on a “crash” basis and allowed the supply chain organization to effectively manage through the surge by improving transparency and access to real-time information on shipments and deliveries.

Site Selection: How will digitalization help companies better cope with challenges like the current pandemic?

Dan McLeod: Digitalization can be described as the use of digital technologies and data to impact how work gets done, transform how customers and suppliers interact and create new digital revenue streams. The pandemic forced many companies to experiment with newer communication technologies, re-engineer and automate business processes, rely upon remote work arrangements, conduct routine business without traveling, and so forth. Although not without problems, many companies have been surprised by the speed of adopting the new methods. As an example, consider the company previously mentioned that adopted new technology for managing inbound freight. (See the response above about a company implementing a superior digital platform for freight management, scheduling, and tracking of import orders from Asia.)

Alex Bryant President, EWA
Mark Plum Director, EWA
Dan McLeod Director, EWA

In many cases, barriers to digitalization were about bureaucracy and a reluctance to disrupt existing ways of working rather than availability of adequate technology. The rapid change has opened a mindset to try new technology. The takeaway is the need for IT to be scalable and to support agility — to shift away from thinking of technology as a cost and instead thinking of technology as a tool for adding value and allowing the organization to better respond to rapid change and disruption.

Site Selection: Where are the companies planning to relocate sourcing and manufacturing operations out of China most likely to site them? Asia looks like the biggest recipient of these projects — did respondents indicate specific markets?

Mark Plum: The respondents who sold the majority of their products in China/Asia all had strong interest in relocating from China to another country in Asia, or developing a “China Plus One” strategy in which they added additional capacity in other Asian countries.

Countries that have received much of the China-related capacity relocation are Vietnam, Thailand and the Philippines. What drives their relocation decisions is closely tied to the type of product and sophistication required in the manufacturing process, competitive cost pressures, size of local market and the ability to obtain investment incentives.

Site Selection: What is the significance of more than 50% of respondents considering or planning moves to Mexico?

Alex Bryant: Over the last 10 to 15 years, more U.S. and foreign companies have established operations in Mexico to service the North American market. As a result, a large number of qualified vendors also established their Mexican operations to service these companies. Thus, this figure is significant because it reflects those companies whose end markets are in North America. Those companies are diversifying their supply chain and manufacturing footprint from China to Mexico to be closer to the end North American customers.

Additionally, this figure represents the fact that Mexico has a well-developed manufacturing base for a number of industry sectors and thus a number of likely qualified vendors and manufacturers producing products which meet the approved technical standards for the North American market.

Mark Arend
Editor in Chief of Site Selection magazine

Mark Arend

Mark Arend has been editor in chief of Site Selection magazine since 2001. Prior to joining the editorial staff in 1997, he worked for 10 years in New York City at Wall Street Computer Review, ABA Banking Journal and Global Investment Technology. Mark graduated from the University of Hartford (Conn.) in 1985 and lives near Atlanta, Georgia.


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