3 things to consider before changing supplier 

The cost of production is critical to all businesses, but as economies develop and geopolitical factors come into play, the most cost-effective sourcing locations for your business can change. 

For example, over the previous two decades, lots of European production moved to countries further afield – often in Asia – where costs were lower. But some of these countries have since experienced wage inflation, making production less profitable.² China, for example, has seen labour rates in its manufacturing sector triple over the last decade.³

However, it may be worthwhile exploring other locations in the same region. These could be developing as production spills over from more expensive neighbours. Vietnam’s labour costs, for example, are around half of China’s⁴ while its export business has grown strongly in recent years and is expected to continue to do so.⁵

It could also be the case that, as costs rise overseas, production nearer to your base becomes more competitive, particularly if potentially lower transport costs are factored into the equation.⁶ Romania, Turkey and Morocco are among those considered as strong potential alternatives to Asia for many European businesses.⁷ 

Key takeaways: If you’re being hit by higher costs in your supply chain and are considering moving suppliers, take a global view from a cost perspective. Regional variations can be strong, although it’s important to consider more than just price when moving to a new location that may not have the same infrastructure as where you are currently sourcing from.

And you should also assess whether it’s still affordable to source from your current locations. You may be able to pass higher prices on, and there can be additional costs (along with other potential headaches) if you move from a good source of supply. 

A survey in August 2020 found that 80% of industries had experienced supply chain disruptions because of Covid-19.⁸ Another survey, polling supply chain leaders in 2022, showed that 97% of them had taken action to increase resilience since the pandemic, including inventory increases, dual sourcing, and regionalisation.⁹

That shows how important reliability is, but how do you help ensure you get it?

When choosing new suppliers there are some key things to look out for. These include their certifications and quality standards, their financial stability, and their capacity to produce what you need – factoring in their expertise in your product area, any commitments to other customers, and the geopolitical landscape too.¹⁰ 

Key takeaways: There are a number of strategies to create a resilient supply chain but, when considering individual suppliers, it can be important to do your research to make sure they are a good fit for your business. Can they make goods to your required level of quality? Are they able to cope with increases in production you may wish to make in the future? And don’t be afraid to ask for references from other customers – they can give you an honest account of previous relationships and help you to make the right decision. ¹¹ 

Businesses need stable supply chains so, wherever you source from, reliability is key. But in recent years, many have experienced the opposite. 

Sustainability in the supply chain is another crucial issue for European businesses. Regulations could soon get tighter – for instance, the EU is planning new legislation requiring certain businesses to monitor their supply chains for adverse impacts on human rights and the environment.¹²

Consumer demands are also very relevant. Recent research shows that sustainability is becoming increasingly important in buying decisions. A large majority of consumers – 85% – say that their purchase behaviour has shifted towards being more sustainable in recent years. In addition, 32% of millennials say they have ‘significantly’ changed their behaviour, and a third would choose a sustainable alternative where available.¹³ 

To tie in with these behaviours, working towards a more sustainable supply chain could be something to consider if you’re moving suppliers. And you wouldn’t be alone. Research suggests that over half of organisations are planning to increase their focus on sustainable sourcing.¹⁴ 

A third of millennials would choose a sustainable alternative where available.¹³

Key takeaways: You may be able to work with existing suppliers to increase their sustainability levels, but if you’re thinking of moving you should take the time to check new suppliers’ credentials – such as how they monitor their environmental performance, their compliance with relevant legislation and the environmental impact of their production.¹⁵

And when thinking geographically, don’t assume nearer is necessarily better. You may find that production sites closer to home could help you reduce overall emissions due to shorter distances to ship your goods, but that doesn’t mean that locations further away can’t offer sustainability benefits too. China, for example, has pledged to be carbon neutral by 2060 and accounted for over 90% of the global spending on low-carbon manufacturing in 2022.¹⁶