It’s no big secret that every manufacturing giant is looking at the Chinese market to procure and source their products. This may seem all good for China, due to its strong economic development, but many people fail to see the downside of what seems like a win-win situation. The increase in industrialization comes at the cost of serious pollution issues – with ambient air pollution alone killing hundreds and thousands of citizens. In a bid to address this issue, the Chinese government is taking critical steps by ordering polluting factories to close and shutting down their power supply. Also, last year, China announced that it would cut down on its steel and coal output, which can lead to a possible economic turmoil. So, what does China’s pursuit of ‘Blue Sky’ signal to the supply chain management of manufacturing giants?
Disruption in Supply Chain Management
Supposing you are relying on one supplier in Guangzhou to deliver the products in time for the holiday season, and then you get to know that the supplier has suspended operations, a scenario which can completely wreck your supply chain management process. Turning towards alternate suppliers to manufacture the product in time will not only drive up the product cost but also freight and cargo cost; thereby, compromising on profitability. Companies would have to look for alternative options or even source locally and possibly redesign their supply chain management process.
Damaging Brand Reputation
The increasing pollution levels in China has forced brands to maintain compliance, as failure to do so not only leads to negative PR but also damages the brand reputation. Companies losing millions in revenues and brand values because of negative press is not a new thing. Consequently, it forces the brands to alter their supply chain management practices to align with standards that comply with local laws. This process usually increases the overheads, in turn, lowering their net margin.
China’s recent government crackdown on pollution has led to the shutdown of tens and thousands of Chinese factories. As a result, manufacturers that comply with EPA laws are facing demands bigger than their capacity – prompting the brands to look elsewhere. Companies will have to go through a great deal of supply chain planning to consider alternative locations such as Vietnam, Thailand, or India. Even though an optimal location can be identified, it would be difficult to match China’s well-established manufacturing network.
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