In the face of rising domestic labour costs, many companies moved their manufacturing and assembly operations to low labour cost countries, especially China. However, local wage inflation is eroding the advantage and earthquakes and floods are highlighting the fragility of long-distance supply chains.

Many organisations are re-evaluating their supply chains and moving manufacturing and assembly either to new lower cost locations, such as Vietnam and Indonesia, or closer to their key markets in developed economies, such as Mexico and eastern Europe. The speed of change means that risk factors must be monitored constantly and the supply chain footprint must be flexible, so it can quickly be reconfigured to remain optimal.

“Supply chain cost structures have become dynamic,” says Kelly Thomas, senior vice-president for manufacturing at supply chain specialist JDA Software. “They fluctuate significantly, causing once-profitable sourcing strategies quickly to turn unprofitable.”