Assessing China's Impact

Based on findings of the IndustryWeek/Manufacturing Performance Institute 2004 Census of Manufacturers, nearly half of manufacturing plants surveyed (45%) now source components and materials from China. When reviewing the Census plants that do source from China, 74% indicate the dollar volume of components and raw materials sourced from China has increased over the last three years (18% say the volume has increased by more than 20%).

To some degree, all industries have China sourcing relationships. Among industries with at least 20 facilities responding to the IW/MPI Census, computer and electronic product manufacturers source the most from China (61% of plants), followed by furniture and related products manufacturers (56%), miscellaneous manufacturers (54%), and machinery makers (52%). Paper manufacturers were the least likely industry sector to source from China (85% report no China sourcing).

Plants with more employees were more likely to source from China than facilities with fewer employees (67% of plants with 1,000 or more employees). Plants that identified their operations as "discrete" were more apt to be sourcing from China (49%) than either process plants (34%) or plants with both discrete and process operations (39%).

Based on practices and activities at plants, a few China-sourcing patterns stand out:

 

• Plants that reported the least integration of their operations with suppliers were less likely to source from China: no integration (37% of plants report China sourcing), some integration (49%), extensive integration (43%).
  

   

• Conversely, plants with the most integration with customers were the least likely to source from China: extensive integration (32%), some integration (50%), and no integration (41%). Plants with tight customer bonds may be constrained by just-in-time delivery commitments that make relying on China supplies more of a concern than an advantage.
  

   

• Those plants that report having no improvement methodology in place were less likely to source from China than plants that have implemented an improvement methodology (Lean, Six Sigma, TQM, etc.). Only 35% of plants without a methodology were sourcing from China, which may indicate that, in addition to having no operations strategy, they have no sourcing strategy as well.
  

   

• Surprisingly, Census plants with "low cost" as a focus of their market strategy were not more likely to source from China than plants without a low-cost focus.

China Impact

It appears that many of the purchase orders now landing on the desks of China executives once were going to U.S. manufacturers. More than one-third of Census plants (35%) indicate that competitors in China have had a negative impact on their plant's profitability, while just 14% of plants report that China competitors have enabled them to increase profitability.

Plants also were asked to identify to what extent the emergence of the Chinese market has impacted plant sales. More than one-fourth of plants (27%) indicate that the China market has caused sales to decrease, while 20% of plants are reaping sales increases, presumably taking advantage of opened markets in China and offering goods for which China manufacturers have not emerged due to a lack of skills or technological resources.

Not surprisingly, the affects from China vary by industry. For example, 45% of primary metal manufacturers and 41% of fabricated metal plants indicate that China competitors have caused their plant's profitability to decrease (the high percentage among industries), compared to just 17% of food manufacturers. A whopping 16% of primary metal makers indicate that their profitability has decreased significantly due to China competitors.

Paper manufacturers, primary metal manufacturers, and fabricated metal plants were the industries most likely to report that sales have decreased due to "the emergence of Chinese markets" -- 45%, 37%, and 36% of plants, respectively -- and food products (10% of plants) and chemicals (16%) were the least likely industries to report a decrease in sales.

Paradoxically, those plants that source from China were both more likely to have profits negatively impacted by China competitors (37% report decreased profitability) and positively impacted (21% report increased profitability) than plants that do not source from China, indicating that China sourcers may be benefiting from factors such as lower material costs, but others are losing sales and, subsequently, profits to China competitors in their end-product markets.

Even within industries whose sales and/or profits have been most hurt from China, such as the metals industries, many plants are sourcing from China but still cite decreased sales and profits. For example, 42% of fabricated metal plants that source from China report that profitability has decreased.

source fromhttp://www.industryweek.com/