Much of the growth in the global economy over the past few years was driven by the rapid growth of low-cost manufacturing in China and the country was hit hard by the global recession.
But the country’s manufacturing sector is starting to expand again, according to the China Federation of Logistics and Purchasing.
The Purchasing Managers’ Index of China’s manufacturing sector stood at 54 per cent in August, according to the China Federation of Logistics and Purchasing. A reading of above 50 suggests expansion, while one below 50 indicates contraction.
While this is good news, there is a warning to be sounded from the second of a series of studies by risk adviser Aon and strategic business partner State of Flux.
The 2009 “Risk in 21st Century Supply Chains” survey found that 75 per cent of companies now think that the greatest risk to global supply chains is financial failure.
Aon points out that the perception of increased risk, particularly financial exposure, is not necessarily borne out by experience with seven per cent facing losses related to financial failure of suppliers – less common than disruptions due to physical incidents at own sites (14 per cent) and incidents at suppliers (12 per cent).
Be that as it may, companies are right to be cautious. Cash flow is all, and suppliers called upon to meet higher demand can easily overstretch.
Managing those risks is critical and success will go to those that have an effective supply chain finance strategy.