Recovering from the Recession Can Cause Risk to Manufacturers

Sept. 30, 2009

Increased prices and problems meeting demand are issues

Due to a number of factors including commodity price increases, limited internal skills after workforce reductions, problems meeting new demand with constrained capacity, low inventory, and transportation constraints, 44% of respondents to an AMR Research report believe the recovery cycle is the biggest risk in 2010.

Twenty three of respondents are worried that the recession will continue, resulting in weak customer demand.

"Even as the economy begins to recover, the impact of the recession on manufacturers and retailers will be long-lasting," said Noha Tohamy, vice president of research at AMR Research and author of the report. "Global supply chains will continue to face major risks in 2010 and beyond. As such, designing a supply chain risk management strategy is still crucial."

Respondents from the quarterly survey of U.S.-based manufacturers and retailers identified the top supply chain risks, where and why they source and manufacture, and how they mitigate risks.

Supply Chain Risks

The top three risks this quarter are: supplier product quality failures (31%); commodity price volatility (30%); and IP infringement (30%)
Though piracy made the news in the first half of 2009, only 2% of companies are worried about its impact on business.
A whopping 12% of manufacturers indicated that more than half of their suppliers have experienced disruptions that impacted their ability to serve them.

Sourcing and Manufacturing: Where and Why?

44% of companies source from and manufacture in the U.S. and 15% source from and manufacture in China.
Companies are continuing to look nearshore for sourcing and manufacturing (11% of respondents), with four times as many respondents planning to increase activity versus decrease.
Respondents cited the U.S. (33%), China (26%), and Latin America (14%) as contributing the most risk to their supply chains. This is attributed to the volume of activity as well as inherent risks.
China contributes the most risk in 11 out of 15 categories, while the U.S. contributes the most risk in 3. The two tie in one category.

Mitigation Strategies

Supplier management is the most successful technology used to mitigate risk (23% report so), with inventory optimization (17%) and sales and operations planning tools (17%) following.
Over the past year, using nearshore regions for sourcing/manufacturing has been the fastest growing mitigation strategy. 38% of respondents say an increase in cost competitiveness is behind this shift.