The high tensions and the potential for armed conflict between China and Taiwan raises the specter of extreme supply chain disruptions, from a cut off of supply out of Taiwan, and a world that might then cutoff China sourcing in response to an invasion of the island it claims is part of its country.
Supply Chain Digest Says...
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| If armed conflict does breakout between China and Taiwan, with the potential for direct US involvement, it will trigger the mother of all supply chain disruptions. |
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So what are procurement managers to do?
Recently offering some interesting thoughts on that is John Manners-Bell, chief executive of Transport Intelligence and founder of the Foundation for Future Supply Chains, in an interview with the UK’s SupplyManagement.com web site.
“There is certainly a threat there, and it would be ridiculous if western politicians and western manufacturers weren't actually cognizant of that and weren't flexing their supply chains to take that into account,” Manners-Bell said, adding that “China is sending a very clear message, and that could result in more disruptions in supply chains.”
Of course, one huge risk is in the area of semiconductors, already in short supply globally for many months – and a product category in which Taiwan leads in production and exports. China is a major sourcing point as well.
If companies think there is a chip shortage now, it will look like abundance should conflict breakout between the two countries. That conflict could be actual combat or a blockade by China of the Taiwanese island.
“Taiwan is fundamental in the semiconductor industry, and any sort of blockade of Taiwan has the potential for a massive impact on semiconductor supply chains and other high tech supply chains as well,” Manners-Bell says.
He adds that In the long term the tensions in Taiwan will consolidate trends towards “friendshoring” - sourcing from friendly nations - as procurement teams factor in the politics and security implications.
In fact, a recent survey by the analyst at Gartner found 75% of supply chain leaders are evaluating or executing changes to their China sourcing and manufacturing strategy, and 55% of those had already acted on those plans.
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 Gartner’s Kamala Raman recommends that to reduce long-term dependence on China, companies should consider the following:
1. Begin now: Incorporate diversification strategies by using a variety of approaches, such as a China Plus One, regional sourcing, or nearshoring approach.
2. Diversification is not an all or nothing strategy: Complete supply chain reconfigurations are not necessary and moving small quantities away from China will still reduce risk.
3. Create effective scenario plans that include clear assumptions and trigger points for actions: Update them often to provide guidance on what diversification strategies need to be enabled and when.
Here’s the SCDigest take: If armed conflict does breakout between China and Taiwan, with the potential for direct US involvement, it will trigger the mother of all supply chain disruptions, with consequences so vast they are hard to contemplate.
But China surely understands this too, which hopefully will constrain their actions.
However, not beginning to pull away from heavy reliance on China – or Taiwan – seem like very risky business.
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