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A Persistent Theme- Be Prepared for a Year of Continual Supply Chain Analysis

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If our readers have had the opportunity to review all of our 2017 Predictions for Industry and Global Supply Chains, you probably picked-up on a dominant theme, that being the election of Donald Trump as President of the United States, and what that could imply for U.S. global trade policies and consequent industry supply chain impacts.

We presume that some readers might ask why raise such concerns so early, after all, legislative actions take time, especially when a change involves a lot of special interests. Industry supply chains have established global value chain links and in theory, should be able to respond to many forms of external-driven changes. However, we continue to submit that the changes being contemplated for U.S. trade and tax policies are far more potentially impactful to industry supply chains, from both an inbound supply and outbound product demand lens. We reiterate that sales and operations planning teams need to be prepared for the various implications that may come along sooner than one would expect.

We pen this posting at roughly two months into the Trump presidency, and already, the dizzying pace of news, speculation and editorial regarding the potential effects of a U.S. anti-trade policy are enough to motivate many a supply chain practitioner to have a drink or two at a local pub. Mr. Trump’s personal attacks on traditional and social media based news outlets adds more fuel to polarization of viewpoints and constituencies, and his actions to utilize Twitter as a personal attack medium against the media, legislators, or specific corporations has everyone on-edge, ready to pounce on the offense.

In the United States, the atmosphere smacks of confrontational politics. The opposition political party is of the belief that the Trump Administration agenda leans far to the right on trade, tax policy, immigration, and climate change, ignoring the realities of a globally based economy, the forces of globally dependent markets and the stark signs of climate abnormalities. Political discourse now focuses on floated proposals regarding double-digit import tariffs or a border adjustment tax.  Recently, Warren Buffett termed such an approach as a “sales tax” on U.S. imports with consequent impacts for increased retail prices of imported goods.

Meanwhile, with major elections pending across Europe this year, right leaning candidates are now emboldened for change and attacking the status-quo of global trade, immigration, and economic growth.

If there is a benefit to the existing U.S. environment, it is that of broadened education on global supply chain flows and potential impacts.  In a prior blog posting, we shared highlights from a briefing with the American Apparel and Footwear Association who provided us data on that industry’s supply chain flows. A published New York Times report indicates how ‘America First” policies could harm the U.S. aerospace sector citing data indicating that “more than 13,000 U.S. companies’ make-up the Boeing supply chain nerve center”, and are dependent on Boeing’s revenue growth. Boeing represents the single largest U.S. exporter in dollar value. China and Mexico combined account for $21.5 billion in U.S. aircraft related exports, while aerospace related imports from Mexico alone account for $2.4 billion. Our news desk has featured other published reports citing supply chain U.S. import data related to retail and automotive supply chains as well.  The most pertinent data, however, is that related to various geographic sourced component costs contrasted to landed and customer cost to serve costs. In the end, supply chains need to best serve individual customers while meeting specific business or product margin goals.

The halls of the U.S. Congress are now congested with industry lobbyists. More than 25 major corporations have formed the Made in America Coalition which include pharmaceutical, chemical, and major equipment manufacturers. On the other hand, firms highly dependent on product imports such as major retailers and certain specific manufacturing companies are rallying to oppose forms of an import tax. Thus, there are industries currently pitted against other industries in a lobbying effort to educate lawmakers as to the real consequences of an American First trade and tax policy.

Once again, we reiterate that Supply Chain Matters is not a political focused blog.

Our role as a supply chain education blog compels us to alert industry supply chain teams to be prepared for continual analysis of potential supply chain impacts or revised product sourcing to better educate senior management on the cost and/or revenue impacts of different scenarios.

We are reiterating these messages because there may be some do nothing tendencies to let the political debates run their course, then, one can respond and act.

We would argue that such a strategy is ill-timed, essentially for two reasons. First, how up to date is your supply chain data related to component and landed costs? Do you have the capability to run multiple planning scenarios related to supply chain sourcing with the ability to update important data when needed? Hint- we are not referencing multiple spreadsheets passed along at various intervals. Do you have the trained people with the skills to perform such analysis on a continual basis, while multi-tasking on other job responsibilities as-well?

The other essential motivator is that an industry competitor or disruptor, who has amassed accurate data, and has completed and educated management as to all the analysis of different scenarios, already will have the head start on evaluating existing of new sources of qualified suppliers and supply chain services that can meet cost objectives, perhaps eliminating supply options from your organization’s consideration.

In today’s hyper competitive markets, one must be always prepared with the most accurate and insightful information relative to important decision-making. Preparedness and speed are the new table stakes.

If you have not already, be prepared for a year of constant supply chain network analysis and scenario-based planning.

The stakes are very high.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 

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