Sustainable Supply Chain

From China to the World: The Changing Face of Supply Chains

March 10, 2023 Tom Raftery / RJ Romano Season 1 Episode 299
Sustainable Supply Chain
From China to the World: The Changing Face of Supply Chains
Digital Supply Chain +
Become a supporter of the show!
Starting at $3/month
Support
Show Notes Transcript

In this episode of the Digital Supply Chain podcast I had the privilege of speaking with RJ Romano from BDO about their 2023 Manufacturing CFO Outlook Survey. We delved into the challenges facing global supply chains and how companies are adapting and evolving to meet those challenges.

In this episode, we discussed:

  • The impact of the pandemic on China's economy and global supply chains
  • The future of global supply chains and what they may look like in the next few years
  • The involvement of CFOs in supply chain management and the importance of collaboration between departments
  • The importance of having a resilient and bulletproof supply chain in case of future disruptions

One key takeaway from our conversation was that companies are now looking to decentralize their supply chains and invest in different countries to create more regionalized and global supply chains. This shift is driven by the need for more resilient supply chains that can withstand future disruptions.

It was fascinating to hear RJ's insights and I hope you find this episode as informative and engaging as I did. Don't forget to listen to the episode in full and share your thoughts with me!

The video of this podcast is on YouTube at https://youtu.be/V-nJ4nsQb-s



Elevate your brand with the ‘Sustainable Supply Chain’ podcast, the voice of supply chain sustainability.

Last year, this podcast's episodes were downloaded over 113,000 times by senior supply chain executives around the world.

Become a sponsor. Lead the conversation.

Contact me for sponsorship opportunities and turn downloads into dialogues.

Act today. Influence the future.



Support the show


Podcast supporters
I'd like to sincerely thank this podcast's generous supporters:

  • Lorcan Sheehan
  • Krishna Kumar
  • Olivier Brusle
  • Alicia Farag
  • Joël VANDI
  • Luis Olavarria
  • Alvaro Aguilar

And remember you too can Support the Podcast - it is really easy and hugely important as it will enable me to continue to create more excellent Digital Supply Chain episodes like this one.

Podcast Sponsorship Opportunities:
If you/your organisation is interested in sponsoring this podcast - I have several options available. Let's talk!

Finally
If you have any comments/suggestions or questions for the podcast - feel free to just send me a direct message on Twitter/LinkedIn.

If you liked this show, please don't forget to rate and/or review it. It makes a big difference to help new people discover it.

Thanks for listening.

RJ Romano:

When I worked in industry, going to a CFO about a supply chain issue was, was very tough and especially if I was asking for money or investment, uh, into the supply chain. CFOs really had no idea from an operations point of view. And, and, I think it bodes well for supply chains nowadays that CFOs are getting involved

Tom Raftery:

Good morning, good afternoon, or good evening, wherever you are in the world. This is the Digital Supply Chain podcast, the number one podcast focusing on the digitization of supply chain, and I'm your host, Tom Raftery. Hi everyone. And welcome to episode 299 of the digital supply chain podcast. My name is Tom Raftery, and I'm thrilled to be here with you today sharing the latest trends in supply chain. Before we kick off today's show. I want to take a moment to express my sincere gratitude to all of our amazing supporters. Your support has been instrumental in keeping this podcast going, and I'm really grateful to each and every one of you. If you're not already a supporter. I'd like to encourage you to consider joining our community of like-minded individuals who are passionate about supply chain. Supporting the podcast is easy and affordable with options starting as low as just three euros. That's less than the cost of a cup of coffee and your support will make a huge difference in keeping this show going strong. To become a supporter, simply click on the support link in the show notes of this and every episode. Or visit tiny url.com/d S C pod. Now. Without further ado. I'd like to introduce my special guest today. RJ. RJ welcome to the podcast. Would you like to introduce yourself?

RJ Romano:

Thanks Tom. Thanks for having me. My name is, RJ Romano and I. Work for BDO Consulting. I lead BDOs, uh, supply chain advisory practice and uh, I'm excited to be here.

Tom Raftery:

Okay, fantastic. And BDO came out recently with your 2023 manufacturing CFO Outlook survey. Do you want to talk to me a little bit about that? Gimme some highlights on some things that you've come across that you found interesting.

RJ Romano:

Yeah, so, uh, the, the survey did just come out. We polled 125 different, CFOs in the manufacturing sector ranging from, 250 million in revenue to over 3 billion in revenue. And, uh, we've done this survey for a couple years now, but I think the focus of this survey was really trying to understand a few different things, one regarding the continuation of supply chain disruption and what the future, uh, may hold there. We also looked, uh, and had questions about merger and acquisitions, investment in technology, and other various topics that are specific to various manufacturing industries like automotive and retail, et cetera. So very, uh, very informative. But, yeah, there was a lot of different, surprises in there that we, I'm sure we can, we can get into.

Tom Raftery:

Okay. And, and let's do it. So what, what were the surprises that you found? What were the, the things that jumped out at you as being most interesting?

RJ Romano:

Yeah. You know, I think, the outlook from manufacturers overall, 70% of them said that, uh, they, are looking forward to a very profitable, 2023. And so, uh, I think the other, interesting part, over the past couple years, supply chain has been a big topic. That's, no, that didn't change as far as the, participants saying 70% of them expect that, there will be some supply chain risk to their business. But, how they go about, addressing those supply chain disruptions was interesting. Typically over the past couple years, it has been around cost reduction and, uh, focused around identifying where there's some risks in supply chain. But at least in this survey, there was a lot of talk about investment in, in technology and visibility of, companies, global supply chains as being very critical for them to make, uh, make various decisions. And then I think the other interesting one was around, the nearshoring onshoring, we really wanted to try to gauge, how many companies on the US side and globally that are looking to move production, move manufacturing to different parts of the world. And, that was, uh, pretty interesting to see the, the results there.

Tom Raftery:

Okay. The whole nearshoring one has been talked about for several years now. and we've not seen a huge amount of movement. Is, is that going to change or is that still just something that people talk about?

RJ Romano:

Yeah, I, I'm with you. You know, we thought, at the peak of Covid there would be this, this mass exodus from, China. What we have been seeing over the past couple years with our clients is, designing, different strategies around how they would deploy that strategy of, of nearshoring or onshoring. And we're starting to see, companies actually push the execute button. And I think 2023 will be, a lot of activity on that front. We've worked with a lot of clients that are deciding, should I actually start a new plant, in a different part of the country? Should I move production out of Asia? Should I just move one production line or a specific, a product to a different part of the country? Those hybrid strategies is what we have been seeing a lot of. And um, I think it's only going to expand. The other interesting part of, the survey was around mergers and acquisitions. We are seeing, uh, a spike in that. And I think that's also part of this strategy where instead of building a new manufacturing plant somewhere else, they are looking to acquire companies that already have a presence. They already have the labor, they maybe already have the equipment and the tooling, to go ahead and manufacture something that they deem as critical and, go down this path of maybe a little bit more vertical integration. But, uh, all of those things are starting to bubble up and starting to, to, to rise to the top a little bit. And, uh, we believe 2023 is gonna be a lot of activity in that area.

Tom Raftery:

Interesting. How, what kind of impact will that have on global supply chains?

RJ Romano:

Yeah, that, that's what we're, uh, trying to figure out a little bit here. But, uh, we, we do know that, everyone is keeping a, a close eye on, the different strategies out there. Some we know already a lot of companies are, looking at manufacturing in other countries in Asia like Malaysia or Vietnam. But the expansion and the increase of manufacturing in Europe and in North America, South America, taking a decent amount of, manufacturing, especially on the chip side from Asia. I think that, uh, everyone is trying to figure out where people will land. But, one thing is for sure Asia is looking at opportunities for them to expand, uh, their companies and their manufacturing presence outside of China. Uh, so Chinese companies are looking to expand their operations and manufacturing footprint in other countries as well. So this is the new norm of global supply chain that has a lot of arms and legs all over the, the, the world. And, uh, it should be interesting for years to come.

Tom Raftery:

Yeah, it's, it's, it is interesting because after, world War ii, let's say you saw, uh, there was relations between the US and Japan were a bit frosty. and one way Japan overcame this was to start building manufacturing facilities in the US. You saw lots of big Toyota plants, for example. China can't exactly do the same thing, can they because you're seeing some pushback in some states when Chinese factories say that are going to start building there.

RJ Romano:

Yeah, the, the China has made a, a huge investment, and there's, there's a reason why they're, they're deemed the factory of the world. And I think what we are seeing is, the large campuses and the investment that they've, they've made in the manufacturing space, it's gonna take a while for us to, uh, see that change anytime soon. But companies are recognizing that, there's an opportunity from a supply chain risk and resiliency point of view to not have all their eggs in one basket. And whether that means, uh, a full-blown manufacturing campus or operations somewhere else outside of China, maybe not so much. But opportunities for certain materials, certain components, certain production lines that could be moved elsewhere is more practical, more efficient, and you just have to be very specific in what type of hybrid strategy or nearshoring or onshoring strategy that you want to have, but the expectation that, these large manufacturing plants and campuses in in China are gonna be picked up and moved somewhere else. That won't happen. The technology and the automation they have is still very, uh, superior to a lot of countries, and that's gonna be a, a, a key for, for them to, uh, to continue with high volumes of production. But, there's definitely going to be, some shifts, across the, the globe.

Tom Raftery:

Okay. And for companies that can't get their facilities outside of China, is it just then a case of, as you said, doing a merger with some other company or standing up a plant in somewhere nearby?

RJ Romano:

Yeah, I think if anything nowadays, there's um, more eyes on the supply chain and, and more companies, more CFOs are getting involved with the operations and are understanding the level of investment that needs to happen for, a supply chain to be efficient, to be resilient to other disruptions. And that should allow for companies who maybe are stuck as far as having manufacturing in China to at least decide and be a little bit, specific or, or choosy about who they want to partner with and, and making, more of a partnership approach to those different suppliers, maybe investing in that company for, increased automation or, a, a new production line. So a lot of companies are going down that path where they are trying to, build a more partnership friendly approach with different suppliers and manufacturers in China. We've seen a lot of that from a supplier contract manufacturing point of view during covid when some suppliers outperformed others. Everyone is kind of on notice and I think for those companies, they should just really focus on, uh, finding the right provider for them and investing in that, that partnership approach.

Tom Raftery:

Okay. And for companies that do have a presence in China, what kind of barriers are in place or what, what kind of it, it, they're obviously finding difficulties in extricating themselves or at least, standing up new, new facilities elsewhere. Apart from just the cost, what other kind of barriers are in place for organizations?

RJ Romano:

I would say the barrier or the, the, the gap is still around visibility, and transparency. The companies that have, great success working, in China or through China, it's because everyone is transparent. There's visibility, there's data that is flowing back and forth, real time in, in some instances that allows people to make proactive decisions and decisions that, uh, make sense for, for both parties involved. And it just allows for a more efficient and, and value added partnership, moving forward. So I think for, for companies that, I wouldn't call it a gap, it would just be a, a focus around making sure that, the visibility and the technology is there so that, from a data point of view and a visibility point of view, your partners or customers, have that comfort level that they can understand what is going on over there. And, they can make decisions, as they need to. And, you have, uh, also the opportunity to be transparent with them. And, uh, that partnership I think is, is where it'll really grow and foster into a solid relationship and you will be a premier customer in that situation.

Tom Raftery:

Okay, and there are regulatory issues to consider as well, aren't there? There's now rules in place about companies having, manufacturing facilities in China versus in other jurisdictions.

RJ Romano:

there, there are. I think the biggest, hurdle right now, or, or regulation that is, will have an impact globally is, is around this forced labor, initiative. Different governments different, regulations are coming out right now around identifying supply chains that, potentially have manufacturing using forced labor. That is, uh, starting to rise as a major concern and potentially might be the new big supply chain disruption out there. If governments start, penalizing companies or holding freight, uh, at borders because they've identified that, something or a component or a piece of a, a product came from a manufacturing location that possibly has forced labor. So this one is very interesting. Again, it goes back to trying to understand and map out your entire supply chain and understanding who are your suppliers to your suppliers, and making sure that there's no risk to your supply chain that all of a sudden, a shipment may be stopped because you thought you were getting it from, uh, a provider that, was not using forced labor, but you find out that, uh, two suppliers lower, they are, and you had no, no idea. So it is a little bit scary. I know that, especially on the US and in Europe, there's various regulations that they are imposing right now around forced labor and, uh, I think 2023 if you're not looking into that, I think that's probably, uh, something that should rise to, uh, the top as far as, uh, a priority for you just to make sure you're checking all the boxes and making sure that, obviously you're freight doesn't get held up somewhere. And, it causes a, a major issue for your company.

Tom Raftery:

Yeah, because the German legislation, whose name I can never remember cuz it's four or five words long and it's Germanic. The, that, that legislation came into effect, if I remember correctly, at the start of this year. Now I think implementation is gonna take a while but still, it's now on the books as the law in Germany, and it will spread throughout the other jurisdictions in the eu, and I assume similarly in the US as well. So that is going to have, big implications, for, for all supply chains, right?

RJ Romano:

Yes, absolutely. And we're, and we're starting to, um, for example, in the US there's various different certifications that you can obtain that allows you to have, faster movements across borders and imports and exports and even something like that, you spend, two years getting a, a special certification and all of a sudden now, there's forced labor language in there that you have to abide by and, uh, you could lose your status. That that could be a, a big impact to a lot of companies. And like you said, it's, it seems to be different countries are considering or, posting these types of regulations. We're not sure exactly when a lot of these regulations are gonna start being enforced, but you don't want to be caught, caught with your hand in the cookie jar here soon if, if those mandates and, and, penalties start to come down on companies. So, I would definitely try to do your diligence now and, and try to understand what regulations are either coming in your country or, impact your part of your global supply chain. And, uh, and start trying to understand, where there might be some risk for you.

Tom Raftery:

And this means that organizations are going to have to have a level of visibility into their supply chains, which they've had difficulty achieving up until now. How do they do that?

RJ Romano:

Yeah, and this one is tricky. Uh, everyone has to get involved. Again, I mentioned, the supplier to the supplier to the supplier. Going, that level of, of granularity takes time. It takes a lot of information. And it, is harder if you're not even sure, from a data perspective or from a visibility perspective, do you have an understanding of all the different suppliers that are in your network? And where that those materials are coming from. You may know where their corporate office is, but do you know where their manufacturing location is? Um, those are the types of details that, a lot of companies, haven't really dived into yet. A lot of companies from a technology, from a supply chain technology point of view are looking at investing things like, supply and demand data, and, and trying to understand transportation costs, but getting to this granularity of all the different suppliers in your network, takes a little bit of a deeper dive and more, more investment of time and, and technology to be able to get there. And so, it is, an opportunity for companies to continue down this supply chain, journey of understanding more about their supply chain, being a supply chain guy for over 25 years, uh, it is good to see it's in the forefront and that companies are focused on it. But besides just being aware of supply chain, you really need to understand all of the different functional areas and the inputs and the outputs, uh, to really get a handle on your entire supply chain. And, and this only just increases that focus for hopefully a lot of companies.

Tom Raftery:

Okay. Is this going to, do you think, have an economic impact on China? Because if we're seeing manufacturers pull outta the country and we've seen their G D P not grow as much as it could have done because of the covid zero. Which now they've rolled back on, but you know, still is this gonna affect their, their growth?

RJ Romano:

I, I think so. I think this is, a major issue that, I know on the US side is, front and center for a lot of companies. We have worked with clients that, had no idea that, you know, they were getting certain materials from China, they were getting, uh, an assembled product that they thought, uh, was coming from a different lo different country. And, unbeknownst to them, they, uh, a lot of that material came from, uh, a region in China that is well known for forced labor. So, it is a little scary. But, I think for China specifically, yes. I think just the, the, the fear alone of potentially having a lot of product, uh, stopped or held, uh, at various borders around the world, just at the potential risk that the, something might be coming, uh, from a country that, uh, has, or a province that has forced labour. That should be a, alone enough for companies to figure out what is my plan B and what's my plan C? And, uh, should we pull the plug on, what we do in, in China. So it's a, it is a major concern and uh, I know it is a driving factor for some of the decisions that have been made by some of our clients on whether they should consider nearshoring or onshoring or moving, their manufacturing. So, that has definitely been a, a, a top, driver in, in those decisions. And I think it'll continue once, especially once, regulations start, and penalties start to, uh, hit different companies and companies start recognizing that, yeah, this is, this is serious.

Tom Raftery:

Mm. And where to from here? I mean, what's, what's the next 3, 4, 5 years look like for China and for global supply chains as a consequence of all this?

RJ Romano:

Yeah. You know, I, I think, I'm excited about the opportunity for investment in, in different countries and the ability for supply chains to really, be regionalized or, truly be global supply chains. It will require a lot of, uh, investment and, investment into supply chain professionals and understanding all of the different variables and nodes of how their supply chain works, especially if you're going to start kind of decentralize it and, and, and put different parts of your supply chain in different parts of the world. I think, that concept is, is definitely front and center and, for China specifically, we do expect, uh, that grip of the factory of the world to loosen quite a bit over the next several years. And, uh, I know US manufacturing alone has, really pushed the chips, uh, manufacturing here in the United States with a bunch of incentives and, and I know, uh, across the world they're doing something similar in different countries. So I think for, that concept, that, that will be kind of the new supply chain, it won't be, anymore where everything is driven off of the lowest cost supply chain and, and leveraging China for that, it's going to be more of a shift of how resilient or bulletproof your supply chain is moving forward for potentially the next disruption. Do you have redundancy in your supply chain so that if a tsunami comes, uh, and it knocks down your one manufacturing plant, do you have another plant ready to go, and has the, the, the bandwidth to supplement that for a period of time. Those types of what-if scenarios is really driving a lot of decisions on what these supply chains will look like 2, 3, 4 years from now. So it is very interesting, but there's gonna be a lot of changes in, in a normal supply chain that is really driven typically off of costs. So, it will be interesting to see how people decide what, their supply chain should look like and, and be optimized, for the future.

Tom Raftery:

Yeah. Yep. Yep. We're coming towards the end of the podcast now, RJ is there any question that I haven't asked that you wish I had or any aspect of this that we haven't touched on that you think it's important for people to be aware of?

RJ Romano:

You know, I think the, the only other thing that I, uh, have, been recognizing from a supply chain point of view and, and this survey highlights it is, the CFO's involvement with supply chain nowadays uh. When I worked in industry, going to a CFO about a supply chain issue was, was very tough and especially if I was asking for money or investment, uh, into the supply chain. CFOs really had no idea from an operations point of view. And, and, I think it bodes well for supply chains nowadays that CFOs are getting involved. They're trying to understand, the challenges, with the supply chain. And it's not just, all the problems rolling down to the supply chain operations team and having to figure it out. It, it's, it seems to be, there is a collaborative effort in the C-Suite office nowadays around supply chain. And so I'm excited to see that. And, clearly from, uh, our CFO survey, CFOs are very knowledgeable of their supply chains and, I hope that continues. That's probably the only other thing, but just ,wanted to call that out.

Tom Raftery:

Super rj, that's been really interesting. If people would like to know more about yourself or about the report or any of the things we talked about in the podcast today. Where would you have me direct them?

RJ Romano:

Yeah, you can, uh, go to, uh, uh, bdo.com, and you can find, uh, information about, uh, our supply chain practice there, or you can reach me on LinkedIn and, uh, I'm available as well there.

Tom Raftery:

Superb. Great, RJ, that's been really interesting. Thanks a million for coming on the podcast today.

RJ Romano:

Thank you very much, Tom.

Tom Raftery:

Okay, we've come to the end of the show. Thanks everyone for listening. If you'd like to know more about digital supply chains, simply drop me an email to TomRaftery@outlook.com If you like the show, please don't forget to click Follow on it in your podcast application of choice to be sure to get new episodes as soon as they're published Also, please don't forget to rate and review the podcast. It really does help new people to find a show. Thanks, catch you all next time.

Podcasts we love