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Softening Demand, Quality Failures, Volatile Energy Costs, and IP Infringement Are Top Risks for Manufacturers and Retailers

Posted on: Tuesday, 31 March 2009, 08:36 CDT

India Emerges as an Up and Coming Alternative for Offshore Sourcing and Manufacturing

BOSTON, March 31 /PRNewswire/ -- According to a report released by AMR Research today, softening demand, quality failures, volatile energy costs, and intellectual property infringement are the top risks for manufacturers and retailers. China still introduces the most risk to the global supply chain.

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

• Lower consumer spending dominated the list of risks this quarter. 37% of respondents identified it as the top risk, with only 15% expecting this risk to decrease by next year.
• 35% of respondents cited product quality failures as the second top risk. Most recently, the salmonella outbreak in peanut butter highlights this risk.
• The No. 3 risk was volatile energy prices, with last year's record high prices still a fresh reminder that price stability cannot be assumed.
• At No. 4, intellectual property should not be overlooked, especially since it is a reason companies are looking for an offshore alternative to China.
• China contributes the most risk in 10 out of the 15 categories this survey tracks. China is plagued with IP infringement issues (49% list the region as contributing the most to this risk, compared to only 9% for the US) and supplier quality failures (48%).

Sourcing and Manufacturing: Where and Why?

• 49% of companies source from and manufacture in the U.S. and 14% source and manufacture in China.
• India is emerging as an up and coming alternative for offshore sourcing and manufacturing, with a ratio of 8 increasing activity to 1 decreasing. Poor physical infrastructure still affects the region.
• The percent of companies citing "political pressure" as the primary reason to onshore manufacturing has doubled since last quarter.
• Five times as many respondents stated that they plan to increase nearshore sourcing and manufacturing versus those saying they have plans to decrease activity.

Mitigation

The most successful risk mitigation strategies are: closer collaboration with trading partners (18%), dual/multi-sourcing strategies and using redundant suppliers (14%), passing cost increases by raising prices (10%), and performance-based contracts with suppliers (10%).

"The results of the survey show how global companies are trying to deal with the major challenges due to the recessionary economic environment, continued brand threats, and product quality failures," said Noha Tohamy, vice president at AMR Research and author of the report.

Please visit http://www.amrresearch.com/Content/View.asp?pmillid=22469 for the complete survey. If you are a member of the media and interested in learning more about the report, please contact press@amrresearch.com.

About AMR Research:

AMR Research is the No. 1 research firm focused on the intersection of business processes with value chain and enterprise technologies. Founded in 1986, AMR Research provides subscription advisory services and peer networking opportunities to operations and IT executives in the consumer products, life sciences, manufacturing, and retail sectors. To learn more about our research and services, visit www.amrresearch.com.

Press Contact: Kevin Reilly kreilly@amrresearch.com 617-350-1745

SOURCE AMR Research

Source: PR Newswire

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