Will Oil Prices Wipe Out China Manufacturing Advantage?
Recent CFO magazine article titled “Sucking It Up” details how supply chains are changing due to cost of fuel. One consideration is how high oil prices have to get before the China manufacturing labor advantage is overcome. CFOs of major companies are considering this:
“Higher oil prices are also exacting a toll on offshore outsourcing, where manufacturers may be located 10,000 miles from consumers. Rhode Island–based toymaker Hasbro, for example, expects a 15 percent increase in the costs of made-in-China products in 2008. CFO David Hargreaves says some of Hasbro’s Chinese vendors are relocating portions of their supply chains from coastal to inland areas to cut labor costs, thus adding even more shipping miles between factories and consumers.”
CFO went on to quote another VP who said that the price of oil would have to “dramatically” increase in order to change the advantage of Chinese manufacturing. I’ve heard talk of continuing increases to $300 a barrel with a lot of uncertainty as to when this would happen. Executives are paying attention to this and are ready to modify supply chains when appropriate.
Are you paying attention to how the cost of fuel is affecting your supply chain costs? What changes are you making?
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