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Major Sourcing Shifts Coming in Next 5 Years

Much like its products, the global high-tech marketplace constantly changes and evolves, making flexibility an essential element for success. Findings from UPS's latest annual Change in the Chain survey, conducted by IDC Manufacturing Insights, demonstrate the need for greater supply chain adaptability, especially when it comes to high-tech executives' shifting sourcing plans.

As referenced in previous blog posts, our annual survey explores the impact of industry changes on the high-tech supply chain and identifies future business and supply chain strategies and plans of senior-level high-tech decision makers.

Among the most interesting findings from the 2012 survey are significant shifts in the planned sourcing strategies of high-tech companies. Nearly one third (33 percent) of US high-tech executives cited “balanced geographic sourcing” as their company's primary strategy for managing long lead times and supply risk. Meanwhile, “extended lead times” were cited as one of the top three “pain points” in the import/export process by nearly half (48 percent) of high-tech executives, underscoring the importance of focusing on new strategies such as leveraging alternate sourcing locations as part of an overall strategy for increasing export growth.

Here today…
Looking at where high-tech sourcing is happening today and where it will happen in the near future provides insights into where industry growth is going. Today, North America (90 percent), China (77 percent), and Korea (61 percent) lead as the top three global sourcing locations for high-tech companies. While these countries will remain top sourcing locations going forward, survey findings unveiled some significant changes in other areas of the world, with high-tech sourcing predicted to double and even triple for some regions in the next three to five years.

Among the regions with the largest predicted sourcing growth are:

  • India, which is expected to grow by 38 percent (only 20 percent of high-tech companies are sourcing from India today, versus 58 percent that plan to source from there within five years)
  • Brazil, which is predicted to grow by 14 percent
  • All other Asia-Pacific (APAC) countries, which are expected to grow as a sourcing location by 14 percent in total, and
  • Japan, which is predicted to grow by 13 percent.

High-tech executives plan to source almost equally from the top two locations — North America (86 percent) and China (85 percent) — in the next three to five years.

While there is no such thing as a “one size fits all” sourcing strategy, geographic diversification of sourcing locations can have benefits for most high-tech companies.

Re-examination
It's critical for high-tech companies to continually examine their sourcing strategies, especially as growth in demand for high-tech products continues to take off in emerging markets around the globe. Having the right sourcing strategies for the right products can help companies overcome challenges with long lead times, uncover opportunities for cost savings in the supply chain, serve new global markets, and enhance customer service.

The key takeaway: Don't let a dated sourcing strategy be the source of future inflexibility in your supply chain. Map your present and future business growth goals against your current supply chain setup, including sourcing strategies and fulfillment/distribution strategies, and identify opportunities for building greater flexibility into your supply chain operations.

To see more data from our survey, download UPS’s 2012 Change in the Chain survey.

11 comments on “Major Sourcing Shifts Coming in Next 5 Years

  1. SP
    February 19, 2013

    What is high tech sourcing? Is it design and R&D or high level maintenance. Looks like Korea is coming up as strong competitor for China.

  2. syedzunair
    February 20, 2013

    It is turing technology into profit for advanced organizations or business processes. Since each company has a different need the dimensions may vary but the bottomline stays the same for all.

  3. syedzunair
    February 20, 2013

    Rich: 

    That depends on the firm that you are working with. Some firms dynamically adapt to the changes in their supply chain to create better overall performance. Yet others hold onto their outdated policies and continue to suffer. 

  4. syedzunair
    February 20, 2013

    Even if you are having a hard time with the supplier and you have an alternate available?

  5. t.alex
    February 20, 2013

    I think it is good if we can tell the major stuff of each sourcing country. What would be coming from Brazil and what would be coming from India?

  6. mfbertozzi
    February 21, 2013

    @t.alex: even if there are apparently differences in terms of culture, people, way to live and so on, I think that both countries could play a strong position in the near future; people are smart and determined to leave, in certain areas, poor condition.

  7. syedzunair
    February 21, 2013

    You need to assess the business dependency of the supplier not he service he extends to you personally. If the supplier is confident in meeting deadlines and provides material on the stipulated lead time he might be given a try. Good suppliers carry a reputation in the market which is fairly easy to get hold of. I would use it to make my decision. 

  8. _hm
    February 21, 2013

    Is five years a long time in world of electronics? Many innovations can happen and economy can take move left or right. Another aspect is change in political stability and political relationship. With recent news of Chinese espionage, many US organzation may be in retreat mode.

     

  9. Brian Fuller
    February 22, 2013

    @_hm, interesting suggestion but I'm not sure I buy the “retreat” concept. In cyberwarfare or cyberespionage, there is no turtle-shell option. I think it's more like a hurricane. You prepare the best you can and move forward when the sun comes out. 

     

  10. Mr. Roques
    February 26, 2013

    Well, maybe they can break the cycle like Dell did when it started changing the PC market. But I agree that supply chains are normally slower to change than any other aspect of the industry. 

  11. itguyphil
    February 26, 2013

    “Is five years a long time in world of electronics?”

    It absolutely is. Just think back to the costs of consumer electornics and what was available in 2007-08.

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