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Reinforcement of Messages for a Year of Certain Strategic and Tactical Supply Chain Planning

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In a prior Supply Chain Matters blog posting earlier this week, A Persistent Team- Be Prepared for a Year of Continual Analysis, we again urged readers and clients to be prepared for a year of continual analysis of the potential supply chain impacts of what could well be significant changing tax and trade policies involving the United States. We cautioned teams against do-nothing tendencies under a notion that political debates need to run their course.

Since we published our commentary, we have come across more reinforcing information.

On Tuesday, global strategy and consulting firm KPMG invited us to view an online seminar from the corporate and policy advisory unit titled: Will New Policies from Washington Disrupt Your Strategy?  The session featured a Principal in C-Suite/Board level strategy, a Partner in Tax strategies and a Principal in procurement and operations value management. Also included to represent a manufacturing focused client perspective was the head of financial supply chain design for global contract manufacturing services provider Flex.

The primary message delivered by KPMG presenters was that given the current scope of pending U.S. changes in corporate tax and trade policies, it is imperative that companies reevaluate existing global footprints, supply chain, and business strategies. The dimensions of potential change were contexed as involving geopolitical, regulatory, and company-specific dimensions. There is also opportunity, in the ability to capitalize early on new policies to gain first-mover advantage.

The presenters presented sample scenarios of the potential net income impacts could be for a U.S. based manufacturer whose supply chain is externally sourced under potential tax reform scenarios, some of which were rather significant in bottom-line impact. What also caught this author’s eye was the potential impact of corporate strategies under current debt vs. equity allocation under a revised policy of potentially non-deductible interest expense. In essence, the weighted cost of capital could tip a lot higher for firms with current high debt loads.

The KPMG team provided some guidance on impacts and timing which, depending on specific area, could be as soon as now, or a year from now in cases of changed trade agreements or U.S. corporate tax policies. Online seminar participants were urged to not silo strategy discussions in finance alone, since the implications involve a revisit of existing and future business operating models. The primary message delivered: “Be agile enough to be able to adapt to changes.”

As we noted in our prior blog commentary, the KPMG presenters posed also the question of being cognizant of industry competitors, especially if new sources of qualified supply are required from U.S. based sources, where existing product value chain capabilities may be limited.  The process of search and qualification should be underway.

A separate development to add reinforcement to the above message was today’s published report by The Wall Street Journal indicating that Samsung is now exploring the feasibility of expanded investment in U.S. manufacturing related to its home appliance product lines.  Initially being planned is the shifting of oven range production from Mexico to the U.S., with potentially added capabilities for refrigerators, washers, dryers, and other home appliances. Samsung directly indicated to the WSJ: “However, this is a complex process that, like all strategic business decisions, will not be made final until it is determined through proper due diligence and planning, that is the best option for Samsung.”

Getting back to the webinar, Brant Miller of Flex indicated that many of their customers are already posing the question of what should our supply chain look like in the U.S., and what level of industry supply chain capabilities currently exist.  An emphasis for increased investment in U.S. manufacturing comes with a strong emphasis on manufacturing automation to offset expected increased costs, and reinforcing perceptions for being a brand-conscious company. Miller reinforced the latter to include a brand that is vested both in sustainable business practices and in U.S. manufacturing to support domestic market needs.

Certainly, not all companies are suited to change major supply chain sourcing strategy.  There are factors of product margins, cost of goods sold (COGS), overall product lifecycles, capital intensity, along with avoidance of higher transportation and inventory investment costs.  The one clear message delivered by Miller was that planning is essential.

We urge readers, if they can, view the replay of the referenced KPMG online webcast. While we do not have a web link at this time, we will post one well available in the Comments section below.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

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