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President Trump Disbands Two Business CEO Advisory Councils Including Manufacturing Council

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The latest political firestorm surrounding the Trump presidency involves the aftermath of the rioting and act of domestic terrorism that occurred in Charlottesville Virginia this weekend, pitting white supremacists against counter-protesters.

Trump’s responses to the incident, including yesterday’s press conference is described by multiple U.S. media outlets as “Trump Unhinged.” In-essence, blaming both sides for rioting and not presenting the moral outrage expected from the leader of the free world is seen as untenable.

The President indicated today that he has decided to disband both the President’s American Manufacturing Council and the President’s Strategy and Policy Forum.

Taking to Twitter, the president tweeted:

Rather than putting pressure on the businesspeople of the Manufacturing Council & Strategy & Policy Forum, I am ending both. Thank you all!

Eight members of the American Manufacturing Council had already walked away in the wake of Trump’s repeated avowal that violence in Charlottesville was perpetrated by both sides. This council was formed to advise the President of U.S. manufacturing policies regarding global competitiveness as well as expanding American jobs in manufacturing and associated supply chains. The Council was a direct conduit and sounding board to the Administration’s efforts to enhance U.S. manufacturing competitiveness and to expand jobs in manufacturing.

The first to resign was Merck CEO Kenneth Frazier. Frazier indicated in a tweet:

As CEO of Merck and as a matter of personal conscience, I feel a responsibility to take a stand against intolerance and extremism

Other CEOs of several major corporations, policy and organized labor added to the resignations. Subsequent CEO resignations included:

Alliance for American Manufacturing

AFL-CIO

Campbell

Intel

Johnson and Johnson

Under Armour

3M

Manufacturing Council members who elected to remain, each issued strong statements condemning hatred, racism, and bigotry. However, as of today, their continued role is moot. The listing of what was to be remaining Manufacturing Council members had included:

Dow Chemical

General Electric

International Paper

Newell Brands

Nucor

Whirlpool

The second advisory group disbanded, the Strategic and Policy Forum, was led by Blackstone CEO Stephen Schwarzman. It included some of the biggest players in finance and business and was formed to advise the President on key strategic issues to include corporate tax reform. Among manufacturing and retail companies were the leaders of Boeing, General Motors, PepsiCo, and Wal-Mart.

On business network CNBC this afternoon, a program host shared a direct CEO quote:

There is such a firestorm, you don’t know what’s coming next, what he’s (The President) going to say or do next.”

A noted and distinguished management professor from Princeton University indicated that conversations he had with CEO’s all reflected immediate consultations with respective Board members to ascertain whether Presidential ties or advisory efforts would be in the best interests of each of these companies.

At this point, policy regarding U.S. manufacturing expansion, corporate tax or global trade reform are solely the purview of the President, his Cabinet members, and key advisors.  The voice of counsel and the reality checks of business leaders are now removed at a time when important business and trade initiatives such as NAFTA re-negotiation and initiatives to add more investments in U.S. manufacturing, supply chain and transportation support infrastructure are all percolating.

We indeed are experiencing a period of political turmoil and high uncertainty.

Industry supply chain teams need to continue to deal with the near and long-term challenges presented in their business settings. To believe that the this week’s events are not related to any industry supply chain mission would be very shortsighted.

High uncertainty is the new normal and businesses and associated supply chains of all forms need to be ready to plan, anticipate and deal with the effects.

Bob Ferrari

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

 


Upcoming Accenture Academy trendTalk- Managing Supply Chains in a Volatile Geopolitical Era

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This posting serves as a sidebar to our previous Supply Chain Matters blog commentary; The Beginning of NAFTA Renegotiation Talks- Monitor and Be Prepared.

We wanted to advise members of Accenture Academy that Founder and Executive Editor Bob Ferrari will be delivering an upcoming trendTalk web seminar fittingly titled: Managing Supply Chain in a Volatile Geopolitical Era. This exclusive trendTalk is scheduled for September 20 at 10 am Eastern time.

Every day we observe headlines that provide updates on the current wave of anti-globalization and anti-trade sentiments that are sweeping the geopolitical landscape. With heightened global tensions now turning toward anti-trade and possibly more protectionist rhetoric among developed nations, industry supply chains must be prepared to deal with potential near- and long-term implications that such policies will bring about.  MSC Ship 2 300x199 Upcoming Accenture Academy trendTalk  Managing Supply Chains in a Volatile Geopolitical Era

This trendTalk examines the current anti-trade and anti-globalization forces impacting various nations and considers the uncertainties they generate. The potential impacts to industry supply chains and the new opportunities brought about in such an environment will be explored. We’ll look at important tools that can be utilized and the steps your business and its supply chain organization can take to be prepared or to take advantage of these impacts.

Accenture Academy members should be able to view and register for this upcoming webcast in the upcoming events section of the member portal.

 

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


The Beginning of NAFTA Renegotiation Talks- Monitor and Be Prepared

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Today marks the formal start of re-negotiations concerning the North America Free Trade Agreement (NAFTA) and many industry supply chain teams should be monitoring developments and conducting ongoing analytical analysis and management education.  There is a very narrow window for negotiators representing Canada, Mexico, and the United States to come to a broad consensus of agreement, and there is a risk that the negotiations could drag-on.

The Trump Administration has been the prime catalyst for leading-up to this week’s start of negotiations to fulfill campaign promises related to NAFTA being unfavorable and “unfair” to U.S. trade. The President has threatened that the U.S. would withdraw from NAFTA if a better deal for U.S. businesses and America’s workers is not achieved. Fortunately, key Trump Administration trade advisors and negotiators seem to be taking a more practical stance.  Cont Train 300x200 The Beginning of NAFTA Renegotiation Talks  Monitor and Be Prepared

NAFTA represents a truly inter-connected, regional industry supply chain ecosystem of material flows across and within the region’s borders. By some accounts, Canada, Mexico, and the United States trade some $1.24 trillion annually, nearly $3.3 billion per day on average under the current agreement that has existed for 20 years. Industries such as automotive, apparel, food and agriculture and others have established strong product value-chain linkages spanning the trade region and any significant changes are bound to have some impact.

Many business and Congressional leaders have emphasized the benefits gained from NAFTA, and are calling for modernization vs. overhaul of the trade pact. In late July, U.S. negotiators released a listing of 100 trade objectives which according to many, underscore the complexity and scope of challenges that negotiators must overcome. However, the good news is that many of the U.S. objectives mirror common ground in that they represent trade tenets that were already agreed to during previous negotiations concerning the Trans-Pacific Partnership (TPP). They include labor, environmental, intellectual property protection and trade in digital products which essentially have already been agreed to by all three NAFTA partners. The U.S. elected to formally withdraw its prior-agreement to TPP shortly after President Trump took office.

In today’s highly-charged political climates, the re-negotiation of NAFTA presents many politically focused challenges for all three countries. President Trump’s tough stance to “get a better deal” for the American worker is certainly one political backdrop, especially with the Congressional mid-term election cycle starting in 2018. Similarly, Mexico has its Presidential election scheduled for July of 2018, and the Mexican political climate has been highly charged regarding Trump policies on trade and immigration. Thus, by many published accounts, if the parties cannot come to some consensus of general agreement by the end of this year, existing talks would extend for many more months or even risk suspension, making consensus a far larger challenge.  Even if NAFTA negotiators were to achieve a consensus by the end of 2017, there would remain a series of multilateral negotiations for each specific industry such as automotive.

There are risks that the talks could drag on for many months to-come, adding a lot of supply chain strategy uncertainty regarding rules of origin and tariffs, not to mention increased trade tensions or retaliation among either of the parties. If talks were to fail and the U.S. elected to withdraw from NAFTA, tariffs would revert to the World Trade Organization most-favored nation tariff structures.

There are specific areas of prime contention. The first stated U.S. objective is: “Improve the U.S. trade balance and reduce the trade deficit with NAFTA countries” which strikes experienced trade experts as highly political and one-sided. For Canadian negotiators, a noted deal-breaker are stated U.S. efforts to eliminate Chapter 19, a process that allows Canada and Mexico to appeal trade duties imposed by the U.S. through independent panels rather than litigation through U.S. courts. Entering this week’s talks, Canada’s negotiators have already positioned a stance of Chapter 19 dilution as a non-starter to any broader agreement. The U.S. also seeks to reduce the direct labor wage gap perceived to exist within Mexico, accusing that government of policies to sustain such a gap to make Mexican sourced production more attraction. That appears to be a non-starter for Mexico. The U.S. wants to tighten rules-of-origin measures, used to qualify for duty-free access based on NAFTA content. The current NAFTA rule of origin for automobile manufacturing is 62.5 percent of NAFTA composition. Rules of origin related to the auto industry turned out to be a contentious point for TPP negotiations last year as-well, dragging out consensus to the last minute.

Practical minds would conclude that the total scrapping of NAFTA for the sake of one country’s objectives does harm for the entire region. Major corporations and industry interests have too much already invested in NAFTA wide supply chain material and services flow, and would not tolerate a complete disruption. But, ladies and gentlemen, we exist in highly-charged, geo-political times were logic is sometimes overridden by events.

We submit that for businesses and their supporting industry supply chain teams, a posture of sitting-back and waiting for a clearer sense of policies and direction presents added risk. That includes the risk for not being adequately prepared to deal with any implications of future changes to NAFTA, or to have the ability to seize opportunities to gain added market or financial benefits because of any major trade agreement changes.

As we have emphatically stated in prior blog commentaries, this is a period where industry supply chain and procurement sourcing teams need to be constantly analyzing and educating and advising. This includes maintaining the most accurate up-to-date information regarding multi-tier supply chain flows with the ability to perform multiple scenario and what-if planning and analysis exercises to educate senior management as to potential vulnerabilities as well as market and supply chain sourcing opportunities. It should be little surprise that multi-national as well as small and mid-market manufacturers have already initiated various measures to hedge regional and/or global supply chain risk.

Over the coming weeks, both in online seminar talks and blog commentary, this author will outline what I consider to five specific actions that executives and supply chain teams can and should do to insure your company, larger or small, has the tools and competencies to manage an ongoing era of geo-political trade uncertainties.

Stay tuned.

Bob Ferrari

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


Shutting Down Factories- A Concerning Report on Malware Attacks

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Of late, it seems to this Editor that the topic of the threats and implications of cyberattacks has been far more prevalent in 2017, for very good reasons.

There are many facets of supply chain risk and major disruption, and combating cyberattacks is clearly becoming top-of-mind.

A new reminder to such threats comes from a recent, albeit disturbing, ABC News-Associated Press report indicating that incidents of malware attacks have been specifically targeting industry supply chains that predominately are managed by just-in-time (JIT) inventory and production processesPlanning 3 shutterstock 394279114 300x184 Shutting Down Factories  A Concerning Report on Malware Attacks

The report profiles a North Carolina automotive transmission supplier that was impacted by a malware attack a year ago, literally shutting-down the production line until the company paid a ransom to the hackers. It seems that today’s hackers fully understand the JIT principles where supply chains manage inventory and production to hourly or daily replenishment needs, and little more. Thus, any significant disruption has a disruption further up and down the supply chain, one that can translate to a rather expensive exposure. In the specific case of the North Carolina automotive supplier, it was upwards of $270,000 in lost revenue and wages for every hour the factory was not shipping parts to nine Toyota Motor car and truck assembly plants.

As Supply Chain Matters has noted in prior commentaries related to either specific cyberattacks or Internet-of-Things enabled manufacturing processes, many of today’s factory systems and networks are aging and do not necessarily have all the latest information security safeguards installed.  Some data and application interfaces have not been updated in months or years, some have technology no longer supported by the original provider. That places a difficult burden on internal IT support teams to ensure that continuous production uptime is maintained, not to mention marshaling an effective response when a malware attack was to occur. That is especially an ongoing concern for specialty or mid-sized manufacturers who do not necessarily have access to a large in-house IT support team.

The AP report cites a Cisco Systems survey of nearly 3000 cybersecurity executives conducted last year indicating that one out of four (25 percent) of manufacturing organizations reported cyberattacks that cost them money in the prior 12 months. No doubt, that number is a lot higher since many companies tend to treat such information as confidential and not for disclosure.  Other data cited indicate that cyberattacks that target industrial control systems have double in the past year, in the U.S. alone.

In a Supply Chain Matters July posting, Actions to Consider in Cyberattack Defense and Mitigation, we reinforced the obvious takeaway that the frequency and scale of cyberattacks are indeed on the increase, with many more to come. This is a multi-billion-dollar problem, and now we know that hackers are sophisticated enough to understand industry supply chain process vulnerabilities, weak points that provide lots of leverage in securing ransom demands.

In our July commentary, we outlined four mitigation actions that supply chain teams should be actively working on. Given this latest reminder of targeted vulnerabilities, we are compelled to reiterate:

  • Scope and continually understand your company’s supply chain risks.
  • Factor the age of legacy systems, particularly those related to older factory control systems.
  • Determine in-advance, the specific roles and responsibilities in Business Continuity Management.
  • Insure active training, questioning and inquisitiveness with internal and external teams regarding information as to unusual or suspicious activities, security awareness and action plans if and when a cyberattack occurs.

 

Hackers are indeed becoming more sophisticated in many dimensions including an understanding of supply chain vulnerabilities.

Bob Ferrari

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


Retail Suppliers Pitted Against Private Equity Investors

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From time-to-time, we will call Supply Chain Matters reader attention to noteworthy industry editorials, particularly when they have supply chain implications. This particular blog applies to the retail industry and its associated supply chains and how private equity financing practices are pitting suppliers against investors.

Yesterday’s edition of The Wall Street Journal included a report, Private Equity Takes Fire As Some Retailers Struggle. (Paid subscription required) The essence of the report was that the recent wave of bankruptcies involving retailers has revived the debate about the role of private-equity investors in perhaps accelerating the problems of retailers in distress.  Zara London 300x196 Retail Suppliers Pitted Against Private Equity Investors

The WSJ notes that between the period of 2011 to 2013, many private equity takeovers occurred when money was cheap. The report cites $90 billion in leveraged loans and high-yield bonds raised for private-equity owned retail borrowers to make dividend payouts. Recent bankruptcy proceedings involving Payless ShoeSource, Gymboree, rue21 and True Religion reportedly have a similar theme of private equity firms eventually loading added debt on balance sheets while insuring dividend payouts to investment firms. The mountain of debt, coupled with reduced revenues and profits, accelerates the process towards bankruptcy. When such proceedings reach the bankruptcy courts, unsecured creditors, often suppliers and real-estate landlords, then discover that there is little remaining to settle outstanding invoice claims within the bankruptcy settlement process. Typically, in bankruptcy, lenders expect to be paid before equity owners.

Creditors are now becoming more active in filing actions against private-equity investors to provide additional monies for outstanding creditor settlements.

As our industry supply chain readers are well-aware, consignment inventory or vendor managed inventory (VMI) practices are fairly common practice in retail and consumer goods focused and other select industry supply chains.  They were designed as a response by suppliers to assist key customers in their inventory and cost-of-goods sold (COGS) financial objectives. Suppliers holding inventory ownership until goods are sold is a means of lower cost inventory financing for the buyer.

To amplify the extent of this ongoing problem, in March of last year, Supply Chain Matters called reader attention to retailer Sports Authority’s disturbing twist to consignment inventory management practices.  Characterized as one of the largest sporting-goods retailers, the chain was weighted down with debt from a prior leveraged buyout a decade ago. In its bankruptcy filing, Sports Authority indicated $1.1 billion in debt that included $717 million in bank loans and over $200 million in trade debt owed to suppliers. As is a common practice in retail supply chains, suppliers had consigned inventory to this retailer, expecting payment when the goods were sold to consumers. The retail chain then filed lawsuits with more than 160 of these suppliers challenging supplier claims to consigned inventories. The supplier lawsuits were apparently a means to challenge who gets the bulk of compensation when consigned goods are sold in store closings or in discounted sales. According to published reports, Sports Authority’s private equity owners as well as a consortium of banks were apparently seeking to test defects in inventory consignment agreements. The courts eventually rejected such arguments. In our March 2017 commentary, we characterized that development as a new low by private equity firms in challenging successful established business practices for singular gain. It literally challenges the notions of win-win supplier collaboration practices.

Over a year later, the situation continues, pitting suppliers against equity owners as to whom gains an equitable financial consideration when retailers are forced to go bankrupt. With each occurrence, more cynicism enters the process and efforts toward broader industry supply chain collaboration and information-sharing suffer the consequences.

An industry that continues to undergo unprecedented industry challenges, unfortunately must also deal with the effects of private-equity investors with a zeal for short-term benefits at the expense of longer-term successes.

We offer no definitive prescriptions for resolving such a problem, other than to raise broader awareness and appeal to industry participants to respect the importance of the supply chain ecosystem. Shortchanging suppliers for near-term gain may be viewed as finally innovative but it comes at a steeper longer-term cost.

Bob Ferrari

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


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