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Deep Dive on 2017 Prediction Four: Increased Anti-Trade Geopolitical Forces Provide Added Global Sourcing Challenges

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The following Supply Chain Matters blog is part of our ongoing series of deep dives into each of our previously unveiled ten 2017 Predictions for Industry and Global Supply Chains.

At the start of the New Year, our parent, the Ferrari Consulting and Research Group along with our Supply Chain Matters blog as a broadcast medium, provide a series of predictions for the coming year. These predictions are shared in the spirit of assisting industry specific and global supply chain cross-functional teams in helping to set management objectives for the year ahead. Our further goal is helping our readers and clients to prepare supply chain management and line-of-business teams in establishing impactful programs, initiatives, and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and customer service management.

In an earlier Supply Chain Matters blog postings, we provided deep dives related to:

Prediction One- Subdued World Economic Outlook and Heighted Uncertainty to Test Industry Supply Chain Agility.

Prediction Two- A Challenging Year in Procurement

Prediction Three- A Supply Chain Talent Perfect Storm

In this deep-dive series posting, we drill down on Prediction Four.

 

2017 Prediction Four: Increased Anti-Trade Geopolitical Forces Will Provide Added Sourcing Challenges for Industry Supply Chains

In our predictions concerning 2016, we stated that major developments surrounding global trade policies would occupy the attention of many industry supply chain organizations during the year. Our context was the potential adoption of major global trade agreement such as the Trans Pacific Partnership (TPP), China’s competing One Belt, One Road (OBOR) initiative, and the Transatlantic Trade Investment Partnership (T-TIP).  Geopolitical events turned quite negative in terms of expanded global trade and thus the attention of industry supply chains never materialized.

For 2017, our prediction remains that major developments surrounding global trade policies will occupy the attention of many industry supply chain organizations during the year, but now from a far different and perhaps opposite perspective.

Across the globe, growing gaps in income inequality and rising political discontent against elements of domestic and international status quo are fueling a growing backlash towards global trade and unfettered open markets. With heightened global tensions now turning toward more anti-trade and possibly more protectionist rhetoric among developed nations, industry supply chains must now be prepared to deal with potential near and longer term implications that such policies will bring about.

A global environment that begins to turn hostile toward open global trade policies could result in increased import tariffs and added protectionist measures among trading nations, particularly China and the United States. According to the IMF’s October 2016 World Economic Outlook: “In short, turning back the clock on trade can only deepen and prolong the world economy’s doldrums.”

As we pen this prediction in early January, the World Bank declared that political and policy uncertainty in China, Europe, and the United States and in other major global economies are at unprecedented levels. There are fears that the Administration of Donald Trump could trigger a trade war with China and Mexico with threats to impose higher import tariffs for components and products entering the United States. The bank cautions that such a trade war may offset any gains from corporate tax cuts for U.S. businesses.

Further as we pen this prediction, proposals being floated by the Republican Party dominated U.S. Congress that are being directed at corporate tax reform feature border adjustment concepts. Essentially, the concept is applying taxes based on where a product is sold rather than where it is made or where the producer’s operations or executives are based. Imports would not be deducted as a cost of doing business, while exports would be exempted from taxes. The Wall Street Journal and other business media have already raised awareness as to the potential impact on industries that sell most their products domestically while sourcing most production externally in lower cost manufacturing regions. Examples are toys, consumer electronics, apparel and footwear and other products. Such concepts, if enacted, will place a far different financial perspective related to lower-cost production sourcing.

We anticipate that industry supply chain network models will undergo continuous analysis and scrutiny in the coming year as respective supply chain teams assess various changing landed cost and tax factors among product management models. That will likely require a lot of analytical modeling to ascertain impacts to product margins and line-of-business financial metrics.  They could further impact today’s contract manufacturing services model in the notions of where bill-of-material components originate from and where final products are shipped to.

Global trade issues indeed percolate in the coming year and they will likely be complex and confusing to sort out in terms of which will ultimately come to fruition. We concur with the IMF and the World Bank assessments that the Trump Administration could well be part of the epicenter of anti-trade disruption rhetoric to fulfill the political promise of Make America Great Again, and that may well include heightened trade tensions involving China or other lower-cost manufacturing nations.

Global trade advisory firms and consultants will be quite busy in 2017 in advising clients of potential implications of more protectionist trade policies or the heightened risk factors for certain global markets.

As noted in Prediction One, the ability to analyze and share important information, and to educate the business and C-Suite executives on supply chain impacts and/or risk tradeoffs of changed trade policies that potentially impact existing global and product innovation sourcing will be an important differentiator and competency throughout 2017. Collaboration among product sourcing, product development and supply chain strategy teams is essential. Organizations should further consider the value of organizing centralized, dedicated sourcing strategy and impact teams responsible for ad-hoc analysis while fostering a common foundation of analysis data and information. In essence, the task may be more of multiple scenario based analysis predicated on different input and output factors.

Our takeaway is that an assumed static global sourcing strategy could prove to be rather risky in 2017.  Technology supporting more analytically focused analysis and decision-making will likely play a very important role in the coming year.

This concludes our Prediction Four drill-down. In our next posting of this series, we will dive into Prediction Five that predicts continued turbulence across global transportation networks.

Bob Ferrari

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


Airbus and Boeing Report 2016 Year-End Operational Performance Amid an Industry Inflection Point

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Once again, both Airbus and Boeing declared that they each exceeded operational performance targets in 2016 but the numbers would indicate an industry inflection point is at-hand, one that has implications for the collective industry supply chain ecosystem for the next several years.  Boeing 737 Max Production Line

Airbus

Airbus announced the delivery of 688 completed commercial airliners among 82 customers in 2016 representing an 8 percent increase over 2015 delivery performance. Of the total, upwards of 79 percent of total deliveries originated in the A320 aircraft line-up, including 68 of the new, more fuel-efficient model A320neo (new engine option).

During 2016, Supply Chain Matters highlighted some significant challenges related to delayed deliveries of the innovative new Pratt & Whitney geared turbofan engine featured on the neo model. Pratt had to cut back its original delivery commitment of 200 to 150 because of several supply and production challenges. With announcement of the final delivery number, we can now estimate that customer deliveries of 71 percent of the A320 family aircraft came in the second-half of the year. In the month of December alone, 66 A320 model aircraft were delivered, 45 in the new engine option. That would seem to imply that Pratt made the bulk of its revised engine delivery commitments promised for the end of the year. In its year-end announcement, Airbus indicated that it has now commenced deliveries on both engine variants of A320neo, to include the CFM International LEAP 1A as well as the Pratt PW1100G model engines.

Another noteworthy data point related to deliveries was the 49 A350 XWB aircraft delivered in the year.  This model was dogged with component supply shortages related to interior seating, lavatory, and other interior components throughout the year. The fact that Airbus actually delivered just short of its 2016 goal of 50 A350’s in 2016 is a testament to detailed planning and collaboration with key suppliers.

The European aircraft producer further achieved a total of 731 net orders from 51 customers, eight of which were new. That included a mix of 604 single-aisle and 124 wide-body aircraft.

At the close of 2016, Airbus’s overall order backlog stood at 6874 aircraft valued at $1,018 billion at list prices.

Boeing

U.S. based Boeing announced the delivery of 748 completed commercial aircraft among 100 customers, taking the industry title of highest delivery number. Of that total, 65 percent of deliveries (490) originated in the 737 single-aisle model. The 2016 delivery performance of 748 represented a decrease of 762 aircraft delivered in 2015. Boeing made a management decision earlier in the year to throttle-back the production delivery rate for 2016 to control costs and boost profitability.

A continued challenged program remains that of the 787 Dreamliner, which recorded a total of 137 completed aircraft in 2016, two more than the 135 total delivered aircraft in 2015, despite achieving break-even profitability of this program. Keep in-mind that airline customers pay the bulk of an aircraft’s negotiated price at time of delivery.  The leading-edge designed 787 Dreamliner was first unveiled in 2007 representing the most fuel-efficient aircraft at the time, and a planned more innovative replacement for aging 777 operational aircraft. The aircraft was originally planned to enter service in 2008, but first flight did not occur until late 2009. After a series of highly visible snafu’s related to explosions with its lithium-ion batteries resulting in a several month FAA grounding, the Dreamliner did not enter full operational service until 2011, and today, two separate production facilities produce finished aircraft. Boeing has now elected to shelve plans to increase monthly delivery rates from 12 to 14 monthly.

Chicago based Boeing reported a total of 668 net orders in 2016 worth $94.1 billion at list prices, well below the 768 net orders booked in 2015. This represented the company’s weakest year for new order growth, a sign taken by Wall Street that the prolonged boom in aircraft sales may be waning. Boeing actually secured gross orders for 848 new jetliners but experienced cancellations of 180, the majority of which were from customers switching from wide to narrow aisle aircraft. The company’s new order rate considerably lagged in the second-half of the year, and ultimately led to sudden senior management leadership change for the Commercial Aircraft business arm.

 

Our stream of Supply Chain Matters commentaries related to commercial aircraft supply chains have painted a picture of an industry that is designing and manufacturing new generations of more technology laden, far more fuel efficient new aircraft. This led to the enviable position of having order backlogs of upwards of $1.5 trillion that extend outwards of ten years. At the same time, an industry with a track record of prior challenges in its ability to more rapidly scale-up overall aircraft production levels is clashing with the industry dynamics of both Airbus and Boeing in their desire to deliver higher margins, profitability and more timely shareholder returns.  Smack in the middle of these dynamics are relationships among suppliers, who need to continue to invest in higher capacity and capability, but of-late have had to respond to key customer requirements for larger cost and productivity savings.

All of this is about to change and a declared industry inflection point is at-hand. We will dive deeper into this inflection point when we drill down on 2017 Prediction TenIndustry-Specific Predictions coming at the end of this month.

For the industry’s respective multi-tier supply chain, the implications of this inflection point are sobering in terms of planning windows through the year 2020. The decline of new order flows for higher margin wide aisle aircraft place the major emphasis on narrower margin single-aisle aircraft that must produce higher volumes to meet financial business objectives.

Bob Ferrari

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


Deep Dive on 2017 Predictions for Industry and Global Supply Chains- Prediction Three: A Supply Chain Talent Perfect Storm

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The following Supply Chain Matters blog is part of our ongoing series of deep dives into each of our previously unveiled ten 2017 Predictions for Industry and Global Supply Chains.

At the start of the New Year, our parent, the Ferrari Consulting and Research Group along with our Supply Chain Matters blog as a broadcast medium, provide a series of predictions for the coming year. These predictions are shared in the spirit of assisting industry specific and global supply chain cross-functional teams in helping to set management objectives for the year ahead. Our further goal is helping our readers and clients to prepare supply chain management and line-of-business teams in establishing impactful programs, initiatives, and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and customer service management.

In an earlier Supply Chain Matters blog postings, we provided deep dives related to:

 Prediction One- Subdued World Economic Outlook and Heighted Uncertainty to Test Industry Supply Chain Agility.

Prediction Two- A Challenging Year in Procurement

In this third-deep dive series posting, we drill down on Prediction Three.

 

2017 Prediction Three: A Supply Chain Talent Perfect Storm

For all functions that make up the umbrella of today’s supply chain management capabilities, we predict a supply chain talent perfect storm, one that is sure to occupy more of the management attention of supply chain and business senior leadership. The perfect storm is increased skills demand meeting limited available skilled talent supply. As Bloomberg BusinessWeek declared in late December 2016: “Right now the problem isn’t too many workers who can’t find jobs. It’s too many jobs that can’t find workers.” The coming year may well provide a period where lack of skills and talent will take on a discernable and visible impact on required competences.

The perfect storm will come from the confluence of even more demands for supply chain agility and responsiveness to unprecedented business changes across industries, demanding that supply chain teams take on a more strategic advisory or business partner role concerning key decisions in manufacturing and component sourcing, supply chain network design or customer fulfillment changes. Taking on a more business advisory focus requires that supply chain leaders have more depth in their respective organizations to support simultaneous strategic, tactical, and operational support needs, coupled with augmented technology applications that enhance decision-making.

As noted in Predictions One and Two, the continued need for added people and process productivity along more with data-driven decision making capabilities will add to needs for supply chain digital transformation, which has a strong dependency on talent and organizational readiness. Organizations that are driven more by digital transformation capabilities imply self-directed teams, consequent avoidance of barriers among supply chain functional and line-of-business teams with tighter decision feedback loops. Not all organizations are prepared for this level of change.

One of our 2016 predictions noted that the widening of supply chain talent and skill gaps would require organizations to be more innovative and purposeful in recruitment, training, retention, and career planning. We expected organizations and recruiters to more broadly define and recruit employees from skill based dimensions and in expected performance parameters for both current and future organizational needs. We felt that individuals who possess required cross-functional hard and soft skills, including in-depth technology prowess will continue to experience a seller’s advantage.

In 2016, we expected manufacturers, retailers and supply chain services firms would encourage broader training, benchmarking, multi-business, and multi-geography opportunities.  We trusted that supply chain leaders would confront or at least influence the other elephant in the room, namely that of compensation plans related to required supply chain management skills and roles tied to performance, teamwork, and skill achievement objectives. We were hopeful that there will be more of such innovative compensation programs unveiled in 2016.

Regrettably, feedback indicated that many employers currently seeking highly skilled and in-high demand candidates, often offer the low-end of compensation levels. In-demand candidates were savvy enough to figure-out that their skills are drawing higher compensation in other firms or industries, thus recruiters began counseling employers seeking in-demand skills to lead with far more attractive compensation offers from the start or risk candidates quickly moving to other offers.

With the prospects of 2017 providing even more overall pressures to reduce supply chain costs, supply chain, procurement and product management related executives will be faced with difficult choices regarding the existing workforce. Executives who previously established multi-year plans to broaden skills and talent will face the reality that talent needs are more immediate.  With upwards of 10,000 baby boomers turning 65 each day, the skills and experience flight becomes ever more challenging. We expect supply chain teams to further explore phased retirement programs such as that practiced by Steelcase where retiring employees can opt for phased part-time work schedules to mentor and transfer knowledge.

Existing workers do not have the tools and training opportunities because business investment activities continue to lag. That obviously must change in 2017 and open question remains how or if this occurs.

As with 2016, those individuals possessing broad supply chain cross-functional process knowledge coupled with technology savviness and the soft skills needed to influence adoption and change to more advanced decision-making concepts will continue to be in very high demand. Efforts to increase U.S. or North America based manufacturing capabilities will once again face the reality of a lack of available skilled manufacturing talent.

Finally, we must state that existing supply chain focused professionals who have acquired many years of experience need to double their efforts to create awareness and interest for careers in supply chain management among secondary school and college candidates. Many supply chain focused professional organizations such APICS, CSCMP, ISM and others have been stepping-up career outreach efforts and resources, and such efforts could not be more timely. Consider adding your voices and influence.

For our part, we will continue to search out and highlight innovative supply chain talent recruitment programs and initiatives that are delivering meaningful results.

 

This concludes our Prediction Three drilldown in our series of 2017 predictions.  In our next posting of this series, we dive into Prediction Four that calls for increased anti-trade geopolitical forces providing added challenges for industry supply chains.

If readers or clients require further clarity, or wish to contribute additional thoughts related to what to anticipate in the coming year, you can contact us via email: feedback <at> supply-chain-matters <dot> com. Our final blog commentary of the series will include a summation of additional contributed thoughts for what to expect.

 

Bob Ferrari

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

 


Deep Dive on 2017 Predictions for Industry and Global Supply Chains- Prediction Two: A Challenging Year in Procurement

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The following Supply Chain Matters blog is part of our ongoing series of deep dives into each of our previously unveiled ten 2017 Predictions for Industry and Global Supply Chains.

At the start of the New Year, our parent, the Ferrari Consulting and Research Group along with our Supply Chain Matters blog as a broadcast medium, provide a series of predictions for the coming year. These predictions are shared in the spirit of assisting industry specific and global supply chain cross-functional teams in helping to set management objectives for the year ahead. Our further goal is helping our readers and clients to prepare supply chain management and line-of-business teams in establishing impactful programs, initiatives, and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and customer service management.

In an earlier Supply Chain Matters posting we provided a deep dive into Prediction One- Subdued World Economic Outlook and Heighted Uncertainty to Test Industry Supply Chain Agility.

In this second-deep dive posting, we drill down on Prediction Two.

 

2017 Prediction Two: A Challenging Year in Procurement with Renewed Emphasis on Strategic and Technical Skill Needs

Unlike 2016, what is becoming near certain is that in 2017 multi-industry supply chains will be managing a period of rising inbound component and service costs with an increased urgency to augment skill and talent needs.

Supply Streams

The IMF Primary Commodities Index has increased 22 percent since February 2016 with the strongest increases attributed to fuel costs. Non-fuel commodity prices have increased as well, with metals pricing increasing 12 percent during 2016 and agricultural commodity prices increasing 9 percent during the year.

In late December 2016, the widely tracked Standard and Poor’s GSCI index of broad based commodities was up over 11 percent year-to-date. Energy was up 16.2 percent, Industrial Metals up 23.8 percent while Agriculture was down 2.34 percent.

The World Banks Commodity Markets Outlook published in October 2016 called for most commodity prices to rise in 2017, with energy prices expected to increase 24 percent during the year. The agency forecasted oil prices to average $55 per barrel during the year with stronger-than-expected OPEC production supply cuts evident in 2017. The usual caveats come with any major oil supply disruptions caused by global political tensions of conflicts across the Middle East. Non-energy commodity prices were expected to rise 2 percent in 2017. Downside risks for metals included caveats pertaining to a further slowdown of production growth in China, while upside risks were reflected in government-directed supply restraints across Asia and reluctance by producers to activate idle capacity if global demand picks-up.

Business Advisor and Strategic Skills

A challenge for sourcing teams among U.S. based manufacturing firms will be educating senior management on the implications of any added tariffs or trade barriers brought about by the new Trump administration and a Republican Party dominated Congress.  Another reality is that in certain industry sectors, value and supply chain supply competencies have deeper roots in the lower cost manufacturing regions of China and other Asian nations. Any new potential shifts of product or end-item manufacturing sourcing back to the U.S. will have to factor the broader supply chain impacts of such decisions. We have included further observation insights in 2017 Prediction FourFirst Signs of Global Trade Protectionism.

The role of the Chief Procurement Officer (CPO) will continue to evolve in 2017, requiring strategic business advisor skills in ascertaining various impacts to a rapidly changing global supply chain sourcing picture, supply chain risk factors and needs for higher levels of joint innovation from suppliers. Tactical leadership skills will likely be focused in facilitating a renewed business agenda for increased procurement costs savings to meet expected business margin and financial performance goals.

That will be challenging given the expected trends for rising inbound costs across many spend dimensions and categories. In some areas, increased foreign currency headwinds will present either added challenges or opportunities. For many businesses, low-hanging opportunistic cost savings opportunities have been already exploited which implies that with each significant year, the challenge drives deeper into the more complex areas of both indirect and direct procurement cost opportunities.

Industry supply chain teams that previously nurtured or invested in strong, collaborative key supplier relationships will experience the true benefits of such efforts as heightened supply chain risk and uncertainty increases, requiring a greater dependency on loyal and consistent suppliers.

Skills and Talent Management

One of the most significant challenges in 2017 will be in skills development and filling-in skill gaps in replacing retiring staff with increased levels of required technical skills based backgrounds.  Procurement teams have already consistently communicated changed skills requirements brought about by procurement’s changed role as being more of a strategic business advisor as compared to transactional procurement execution.

This challenge is not confined solely to procurement but across many other manufacturing, supply chain, IT, and product management areas. So much so that we have included Prediction Three- Supply Chain Talent Perfect Storm within our ten 2017 predictions.

The skills and talent challenge will become more apparent as this function is called upon to broaden collaboration and decision analysis efforts with product design management and key global and domestic suppliers.  Initiatives directed toward regulatory compliance changes, ongoing supply chain sustainability initiatives and changing contracted indirect services needs will require teams to increase collaboration efforts with other supply chain and business functions.

Increasingly, a fully integrated strategic sourcing and procurement process will become necessary and that will likely require augmented investments in technology beyond singular procurement business processes.

The Institute of Supply Management (ISM) serves as the principal professional organization for procurement. In March of 2016, we had the opportunity to interview Tom Derry, CEO of ISM.  Regarding the topic of skills development, the following was discussed:

“The responsibilities and scope of procurement are changing rather rapidly and there is a need to constantly stay current. To be effective, procurement professionals need to understand the broader capabilities of the supply chain such as planning, logistics and transportation. A procurement professional does not necessarily need to be an overall expert, but should be knowledgeable to the needed capabilities and impacts of decisions across the entire supply chain.”

In preparing this prediction related to procurement, we further had the opportunity to speak with Kristian O’Meara, Senior Vice President, Value Engineering at Bravo Solution. In his current role, O’Meara has had many interactions with procurement teams. He described the current skills challenge as an “HR hurdle”, the lack of talent depth, as one of the biggest challenges for this function in 2017. The stakes are often high. He cited industry data and observations from procurement executives themselves indicating that a missed-hire of adequately skilled or trained talent can amount to upwards of an 18-24-month setback in any given key role’s contribution to support business outcomes. That factors assumptions regarding that the average times to recruit available talent in the market, added with a 6-9 average learning curve for an individual to come up to speed in each role.

 

This concludes our Prediction Two drilldown in our series of 2017 predictions.  In our next posting of this series, we dive into Prediction Three that calls for a supply chain talent perfect storm in the coming year.

If readers or clients require further clarity, or wish to contribute additional thoughts related to what to anticipate in the coming year, you can contact us via email: feedback <at> supply-chain-matters <dot> com. Our final blog commentary of the series will include a summation of additional contributed thoughts for what to expect.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved. Content appearing on Supply Chain Matters® may not be used without written permission of the author or The Ferrari Consulting and Research Group.

 


Deep Dives on 2017 Predictions for Industry and Global Supply Chains- Prediction One: Global Economic Activity

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The following Supply Chain Matters blog begins our series of deep dives into each of our previously unveiled ten 2017 Predictions for Industry and Global Supply Chains.

At the start of the New Year, our parent, the Ferrari Consulting and Research Group along with our Supply Chain Matters blog as a broadcast medium, provides a series of predictions for the coming year. These predictions are provided in the spirit of assisting industry specific and global supply chain cross-functional teams in helping to set management objectives for the year ahead. Our further goal is helping our readers and clients to prepare supply chain management and line-of-business teams in establishing impactful programs, initiatives, and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and customer service management.

In this initial drill down posting, we dive deeper into our first prediction.

 

2017 Prediction One- A Subdued World Economic Outlook and Heightened Political Uncertainty Will Test Industry Supply Chain Agility

 

There is little doubt that the year 2017 will present even more uncertainty and increased volatility for many industry supply chains. Organizations will once again need to be prepared.

Entering the new year, the picture of various indices and benchmarks at the end of 2016, shown in the accompanying chart indicate some problematic areas that include double-digit growth in general commodity and fuel costs, and continued strength of the U.S. Dollar.

2016-15-compdata

 

By the end of 2016, political winds of change were blowing a strong gust across the global economy. Economies are entering 2017 in a year of heightened uncertainty in markets, brought about by more volatile, populist focused political environments among major developed nations including Eurozone countries and the United States. At the same time, select global-wide PMI and supply chain indices were all reflecting various signs of positive growth. The open question is whether existing global chain activity gets side railed in the coming year due to geopolitical and other economic events.

The widely unexpected election of Donald Trump as the new President of the United States is indeed sending out shockwaves around the world. The Eurozone, which was already attempting to deal with the unexpected results of Britain’s referendum vote to exit the EU (Brexit) faces yet another concern with Italy’s December vote to reject constitutional reforms, which prompted the resignation of Prime Minister Matteo Renzi. This could lead to a potential general election in 2017 that could have strong populist overtones including potential EU exit.

By late-December, the value of Euro was moving ever closer to parity with the U.S. Dollar, its lowest level since January 2003. Many analysts are predicting that in 2017, the Euro will indeed reach parity and could even drop below the value of the dollar at some point. That will add to the challenges of U.S. based companies to export products and services globally.

Also in 2017, a presidential election will occur in France with parliamentary elections scheduled for Germany and the Netherlands. With Brexit and the election of Donald Trump, fringe political parties are gaining a renewed voice, and with that, a whole lot of uncertainty relates to change in existing immigration policies, protected borders and restricted free trade policies to protect domestic employment.

This will cause industry and global supply chains to be challenged with the need for higher levels of agility in 2017. Supply chain risk factors will significantly rise across many industries and within many global regions, along with needs for educating line of business and senior executives on the supply chain implications of such risks. More informed and deeper analytical capabilities to ascertain various impacts to global component and finished goods manufacturing and supply chain sourcing will likely be an ongoing requirement and supply chain organizations who have not invested in such analysis and decision-making capabilities will be tested.

In its World Economic Outlook published in October 2016, The International Monetary Fund (IMF) cited a subdued outlook in 2017, with political tensions and an elevated policy uncertainty prevalent in the global economy. A stated common theme was the weak and precarious nature of the global recovery and consequent threats it was facing. That was before the sudden unexpected election of Donald Trump.

The October WTO forecast called for an anticipated global growth rate of 3.4 percent in 2017. The October forecast last year had called for a 3.6 percent growth level in 2016, but that was subsequently revised downward during the year to a current 2016 projected growth of 3.1 percent. Because of the ongoing uncertainty, the WTO forecasters clearly indicate that again in 2017, the potential for output setbacks are high as underscored by repeated markdowns in recent years.

Prospects were noted as differing sharply across countries and regions, with Asia in general, and India showing robust growth prospects. The 2016 growth forecast among Emerging Market and Developing Economies was projected to grow 4.6 percent. 0.4 percentage points higher than projected 2016 levels. Growth for China is 2017 was reduced to 6.2 percent vs. a 6.6 percent expected growth rate in 2016.

Growth among Advanced Economies, which includes the Eurozone, Canada, Japan, United Kingdom and the United States is forecasted to grow 1.8 percent in 2017, 0.2 percentage points higher than projected 2016 levels. While the WTO projects output in the United States to grow at an annual rate of 1.6 percent in 2017, current forecasts from economists are more optimistic, indicating a 2.4 percent growth rate reflected in increased output due to corporate tax reductions and potential added infrastructure investments.

The J.P. Morgan Global Manufacturing PMI, a composite index and recognized benchmark of global supply chain and production activity registered a value of 52.6 by the end of 2016, reflecting a surprising 1.9 percentage point increase from where this index ended in 2015, at a value of 50.7. By the end of December, global PMI indices pointed to spurred Q4 growth among developed economies such as the United States, Eurozone countries, Japan, and Taiwan. However, supply chain activity indices were generally declining among developing and low cost manufacturing regions apart from Vietnam. Currency pressures and a rather strong U.S. dollar were again having a discernable impact on output levels.

With major future trade agreements such as the Trans Pacific Partnership garnering little domestic political support in the United States and now other nations,  other Asia-centric global trade initiatives will come to the forefront with China as a major influence.

As we have stated on prior annual predictions, industry and global supply chains should anticipate yet another challenging year with resiliency, adaptability, and risk mitigation as important competencies. For 2017, industry supply chains will again be called upon to help contribute to top-line revenue growth. We anticipate added pressures for cost controls and cost reductions, which will place additional pressures on capabilities. The ability to share important information and educate the business on supply chain impacts and/or risk tradeoffs will be an important differentiator.

In seeking other viewpoints regarding 2017, we had the opportunity to speak with Paul Keel, Senior Vice President of Supply Chain for 3M. His input was: “The leaders of tomorrow will be organizations that can effectively manage a bimodal supply chain.

According to Keel, bimodal equates to continuous improvement initiatives equating to added supply-chain wide efficiencies, coupled with activities that can have direct impact to the revenue growth lever, such as supply chain segmentation, applied use of disruptive technology and continued corporate sustainability efforts. Both are not mutually exclusive and each can complement the other.

We could not agree more.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved. Content appearing on Supply Chain Matters® may not be used by any third party without written permission of the author and our parent, The Ferrari Consulting and Research Group.

 


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