Beyond China: How to Strategize Product Costing Amid Global Supply Chain Shifts

The ‘Anything But China’ movement has been making headlines, especially in the tech industry, with companies shifting production to Vietnam, India, and Mexico to navigate geopolitical risks and rising costs. But this trend is no longer limited to tech. Automotive leaders and industrial equipment manufacturers are also reconsidering their reliance on China.

Why? Rising labor costs and geopolitical tensions have made China less predictable and more expensive for manufacturers striving to maintain profitability and stability. As a result, companies are diversifying their supply chains, moving production to Southeast Asia, Mexico, and Eastern Europe.

This transition challenges procurement professionals to optimize costs, manage supplier relationships, and mitigate risks. To stay competitive and profitable in this changing landscape, procurement teams need to rethink their costing strategies and use smart product costing software to stay ahead.

Why Are Manufacturers Moving Supply Chains Out of China?

Several factors are prompting manufacturers to diversify their supply chains and move away from China. Geopolitical tensions, such as trade disputes and tariffs, have created uncertainty, prompting companies to seek more stable manufacturing bases. In fact, China's share of U.S. imports fell from 21.6% to 14.6% in 2023, reflecting a major shift in sourcing strategies. Additionally, rising operational costs, especially labor and production expenses, have eroded China’s cost advantage, pushing companies to explore more cost-effective options in Southeast Asia, Mexico, and Eastern Europe. The COVID-19 pandemic exposed the vulnerabilities of concentrated supply chains, emphasizing the need for more resilient and flexible sourcing strategies. To stay competitive and reduce risk, manufacturers are diversifying their supply chains and exploring alternative manufacturing hubs.

To address these challenges, manufacturers are increasingly adopting regionalization and nearshoring strategies to minimize risks and improve supply chain reliability. This strategic shift balances cost efficiency, geopolitical stability, and supply chain resilience. By leveraging should-costing and advanced product costing software, procurement professionals can optimize cost structures and maintain a competitive edge. 

Strategic Should-Costing in the New Manufacturing Landscape

For procurement professionals, the shift away from China necessitates a reevaluation of cost structures and supplier strategies. Here's how to adapt should costing effectively:

1. Comprehensive Cost Analysis in New Regions

As companies shift manufacturing away from China, procurement professionals must understand the complexities of cost structures in new regions in order to maintain profitability and competitiveness. This involves evaluating several key factors:

• Labor and Production Costs: Wages, productivity rates, and workforce skill levels vary significantly across Southeast Asia, Mexico, and Eastern Europe, impacting overall cost efficiency.
• Infrastructure and Logistics: The quality of infrastructure, transportation networks, and proximity to key markets influence logistics expenses and supply chain efficiency.
• Regulatory Environment: Local trade regulations, tariffs, and compliance requirements add layers of complexity that must be factored into cost calculations.

2. Building and Managing New Supplier Relationships

Navigating new supply chain landscapes means establishing relationships with suppliers who may have different cost structures and operational practices. It’s crucial to build trust and ensure cost transparency to negotiate effectively and maintain profitability.

• Supplier Identification: Identifying reliable suppliers with the capability to meet quality and volume requirements is the first step in building a resilient supply chain.
• Cost Transparency: Open and transparent cost discussions help procurement teams understand the cost drivers behind supplier quotes, ensuring fair pricing.
• Risk Assessment: Evaluating risks, including political instability, supply chain disruptions, and financial health, is essential to selecting stable, long-term partners.

3. Mitigating Geopolitical and Economic Risks

Shifting manufacturing supply chains introduces geopolitical and economic risks that can impact costs and operational stability. To navigate this complexity, procurement teams need to adopt dynamic risk management strategies.

• Diversification: Distributing manufacturing across multiple regions reduces dependency on any single country, minimizing risks associated with geopolitical tensions or economic instability.
• Scenario Planning: Anticipating potential geopolitical events, such as changes in trade policies or tariffs, allows companies to develop contingency plans and maintain operational continuity.
• Continuous Monitoring: Staying informed about global political and economic developments enables procurement teams to respond proactively to emerging risks.

Leveraging Tset for Effective Should-Costing

Dealing with the complexities of supply chain relocation requires powerful tools that provide precise cost analysis, strategic insights, and the ability to quickly adapt to change. Tset's product costing software provides procurement professionals with the advanced capabilities needed to strategically manage supply chain shifts, optimize costs, and maintain competitive advantage.

• Accurate and fast cost calculations: Quickly simulate cost scenarios and validate supplier quotes with precise, transparent cost breakdowns.
• Supplier benchmarking and cost transparency: Compare supplier costs against industry standards and build transparent cost models for data-driven negotiations.
• Real-time scenario planning and risk assessment: Model supply chain configurations and anticipate geopolitical risks with proactive decision-making.
• Agile adaptation to supply chain disruptions: Rapidly adapt cost scenarios to supply chain changes, ensuring continuity and cost efficiency.
• Enhanced collaboration and decision-making: Centralize cost data for strategic alignment and streamlined communication across procurement teams.