In preparing our overall 2017 Predictions for Industry and Global Supply Chains, and specifically our prior posting, Prediction One- What to Expect in Global Economic Activity, we had the opportunity to speak with both industry, supply chain and technology executives to gain current perspectives of what supply chains should anticipate in the coming months and how to be prepared.
One opportunity was a discussion with Paul Keel, Senior Vice President, Supply Chain for diversified manufacturer 3M Company. In my role as a supply chain industry analyst, my perspectives of 3M extend nearly 15 years, when I first interacted with members of the 3M supply chain leadership team. A lot has occurred since that time, and that came to be the context of the discussion with Keel.
The 3M of today is a $30 billion diversified manufacturer whose supply chains support 5 different business sectors that span both B2B and B2C focused market segments. Industry products are quite diversified spanning industries such as automotive, commercial aerospace, communications, healthcare, high tech electronics and transportation. The consumer segment is the wide variety of 3M branded products that many of us are familiar with including the iconic branded Post-It note pads. Today’s 3M has deeper roots as multi-industry supplier. The company has always been anchored in core manufacturing and today that includes upwards of 220 worldwide manufacturing plants. It all amounts to a considerable scope for 3M’s supply chain teams.
In our interview, Keel referenced Q4 of 2008 as an important milestone checkpoint for 3M, one that created acute awareness to the potential of heightened volatility of industry and global markets brought about by the global financial crisis. He described that point as “opening the aperture” of the 3M of 30 years ago, as a $3B manufacturer, and the aspirations of what 3M has become today in ten-fold revenue growth. The described anchor has been that of a complete product innovation and continuous improvement mindset across the company. It was also a wake-up call that supply chain capabilities do matter, and that 3M had to excel in all aspects of supply chain competencies.
Regarding 2017 predictions relative to heightened industry competition, continued market uncertainties and potential volatility, Keel remains of the belief that the supply chain will play an increasingly differentiating role for high-performing organizations. He states:
“In the hyper-competitive world of global business, we’re finding new ways that supply chain must lead. While historically organizations looked to their supply chains primarily for productivity and cost reduction, today high-performing companies count on us for much more – developing new products, protecting our environment, serving our customers, and driving meaningful value creation across the enterprise. Fully leveraging the power of supply chain begins with the proper mindset. ‘Make and deliver’ is no longer enough. To win in 2017, we’ll need to ‘amaze and delight.’”
Keel further described the notions of a bimodal supply chain perspective:
“There was a time when supply chains could settle for trade-offs…cost or speed, service or quality, flexibility or reliability. Those days are long gone. The equation has shifted from an imbalanced ‘or’ to an equilibrium centered on ‘and.’ Information and technology are central to achieving this synchronization. The leaders of tomorrow will be the organizations that can effectively manage a bimodal supply chain.”
We also discussed technology as the enabler of bimodal capabilities. Keel described 3M’s perspective as: “Asset-light and Information-heavy.” In the bimodal lens, it translates to enabling greater levels of efficiency in overall productivity levers, in an end-to-end supply chain risk mitigation approach to manage volatility, and general in moving forward with overall global optimization. The other technology lens is that of the business growth enablement lever, manifested by enabling continued end-to-end supply chain segmentation capabilities along with digitization of supply chain processes and decision-making needs.
Keel further pointed to corporate sustainability and social responsibility initiatives as an essential mindset going forward and a further component of bimodal. For 3M, this equates to declared responsibilities to communities, to employees and to the environment.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
The Initial Signs of the Donald Trump Era- Continuous Change, Uncertainty and Supply Chain Risk Mitigation
As Supply Chain Matters has noted in prior commentary, the election of Donald Trump as the incoming President of the United States will present quite a number of global and domestic supply chain management uncertainties for industry teams to manage over the coming months, and perhaps years. The question is how to be prepared.
Thus far, Trump’s initial communications and proposed Presidential Cabinet appointments would imply that campaign promises to kill unfavorable trade agreements as well as openly confronting American companies to keep jobs in the United States are holding true. Then again, news of potential Cabinet and advisor appointees would imply a pro-business administration.
The first public confrontation involving the heat and air conditioning Carrier business unit of United Technologies over proposed job reductions that were transferring to Mexico has received quite a lot of media coverage. Trump’s supporters are elated with this initial confrontation. In the end, after closed door discussions, Carrier has agreed to keep roughly 1,000 jobs in Indiana, while the state of Indiana had to agree to provide UTC upwards of $7 million in financial incentives to remain in the state. While Carrier still plans to invest $16 million to retain some operations in Indiana, the intent is to go-ahead with the movement upwards of 1300 other jobs to Mexico and close another facility in Indiana as originally planned. While visiting the Carrier Indiana facility yesterday, Trump once again vowed to reexamine existing trade agreements such NAFTA, and put U.S. businesses on-notice that there would be consequences for any decision related to the movement of jobs out of the country.
Political opinion is now raising the specter of U.S. corporations having to base business sourcing decisions on threats of punitive actions. That further raises speculation that other countries will respond to a Trump administration with threats or their own punitive actions.
On a somewhat positive note, the selection of Elaine Chao, a former Cabinet secretary serving eight full years during the Bush Administration as the nominee for Secretary of Transportation is being perceived as an intent to follow-through on the campaign promise to aggressively invest in needed infrastructure in roads, bridges and other badly needed U.S. transportation infrastructure needs. Ms. Chao provides what is widely perceived as an extensive policy background and she is also the spouse of U.S. Senate Majority Leader Mitch McConnell. If confirmed, Ms. Chao will inherit management of current unprecedented levels of safety related recalls involving the U.S. automotive sector, especially those related to air bag inflators manufactured by supplier Takata. She will have oversight of regulations pertaining to Uber-like transportation services as well as regulations pertaining to autonomous driving vehicles.
For industry supply chain teams, there is little doubt that capabilities in assessing supply chain network design decision support options based on criteria related to direct labor costs, inventory, transportation and landed costs, as well as what may be constantly changing local content requirements will be essential. Capabilities in managing what may turn out to be very fluid and changing global trade management policies and regulations will obviously be essential along with integrating such information with existing product sourcing and planning systems.
Supply Chain Matters sponsor LLamasoft has already indicated a marked uptick in interest levels in the firm’s supply chain network design and Supply Chain Guru focused technology coming from UK based firms because of the Brexit referendum, and anticipates similar increased interest levels as the Trump leadership era unfolds.
As teams prepare for their 2017 investment and resource budgets, minimizing risks related to global sourcing and material movements, deeper analysis and more informed decision-making capabilities, along with overall agility in supply chain focused decision making should be high priority areas.
In 2017 and beyond, supply chain and product management teams will indeed be very involved in counseling senior and line-of-business management on the various whiplash effects of a far more changing global trade environment.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
This past weekend, political leaders of the Asia-Pacific Economic Cooperation forum met in Lima Peru to discuss free-trade, and specifically pending ratification of the Trans Pacific Partnership (TPP). According to various media reports, the delegates sent a direct message to President-Elect Donald Trump, namely that they will move forward with Asia-Pacific trade pacts with or without the support of the United States. The implication could well be more trade influence for China.
The election of Trump reportedly loomed large over this summit of 21 nations, and President Barack Obama had his hands full in trying to assuage fears of the U.S. withdrawing from TPP and other pending global trade pacts. The U.S. Congress has failed to take up TPP ratification in the now lame-duck session, with little likelihood of doing so in 2017 now that there is full Republican Party control across all branches of government. During the presidential campaign, Donald Trump blamed bad trade deals as one of the primary causes of manufacturing and other job losses in the U.S. and threatened to specifically scrap TPP and re-negotiate the North America Free Trade Agreement (NAFTA). In the light of this current perceived trade retrenchment climate, China indicated at the summit that the country was prepared to take the lead in promoting trade. The TPP alliance was a critical component of the Obama policy to counter China’s influence in influencing trade deals and more attractive trade arrangements among Asia-Pacific regions.
This weekend, the countries of Chile and Peru, two existing members of TPP, indicated they were interested in joining the Regional Comprehensive Economic Partnership (RCEP), a China led pact that could involve 16 nations.
Leaders of Both Canada and Mexico also indicated this weekend that they remained committed to North America based trade, which leaves open the question of how much they are willing to re-negotiate the existing NAFTA agreement.
As industry supply chains complete 2016 activities, there is a clear uncertainty looking out to 2017 and beyond if the United States, one of the globe’s largest trading partners takes on a harder trade stance. Many are looking to President-Elect Trump’s policy statements and pending Cabinet appointments to assess how hard a line the U.S. will take.
There are obviously many implications related to protections to intellectual property protection rights (IPP), more open access to Asia Pacific markets and the potential for tariff implications for certain products. All could involve impacts to existing global supply chain product sourcing strategies.
Stay tuned as we continue to assess these changing geo-political developments and their impacts to global supply chain management strategies.
The Donald Trump Presidency- Our Supply Chain, Product, Procurement and Technology Management Focused Perspective
It has taken this analyst over a day to recover from the shock and outcome of the recently completed U.S. Presidential election. Front page newspaper and online media headlines across the globe reflect such unprecedented shock and surprise. Today’s primary headline from The Wall Street Journal declared: A New Political Order.
Supply Chain Matters has become a well-recognized blog providing insights and observations directed at the broad umbrella of what has become supply chain management today. Our perspective is global in nature, not just the United States. Thus, it is probably no secret that this week’s stunning election result has global as well as domestic supply chain management implications for many months to come.
President Elect Trump won the election echoing populist views that favored building frustrations of the everyday workers who remain fearful of the growing tide of globalization. They are perhaps the workers employed, or previously employed in your manufacturing or supply chain operations areas that have had their economic livelihood impacted by various cost-cutting or other business moves.
Populist sentiments fueled Great Brittan’s referendum results to favor exiting the European Union, which was the prior shock heard around the world. There again, populist sentiment was in protection of jobs, a rising tide of immigration and in the burdens of government taxation. Already there is speculation that the populist movement will perhaps impact pending important elections across Europe that are scheduled to occur througout 2017.
However each of us voted, the United States will plan for a peaceful and successful transfer of power. Similarly, U.K. political leaders and institutions will plan for a formal two year exit plan from the European Union.
In this initial viewpoint commentary, we can only touch the surface since so many uncertainties come to mind and a Trump administration is yet to govern and lead the United States. Thus, our first of surely many commentaries to come will focus on helping our readers and clients to begin to think about and context such implications. At this point, supply chain leaders can only assess the potential scenarios and remain prepared to brief the C-Suite on how the overall supply chain is prepared to deal with such implications.
Let’s therefore dwell upon some important areas.
Upcoming Holiday Fulfillment Surge
The most immediate impact is potentially the upcoming holiday fulfillment period. Most retail industry demand for the past two years has been fueled by a positive consumer sentiment. The open question is whether the shock and fear resulting from the U.S. election and other global political concerns spills over to holiday buying sentiments, particularly discretionary type goods such as clothing, jewelry or high fashion. Early product demand sensing will perhaps be a key determinant of any impact.
President Elect Trump was rather vocal and direct regarding current U.S. trade policies involving North America and other global countries. He called for re-negotiation of the North America Free Trade Agreement (NAFTA) and the refusal to ratify the proposed Trans Pacific Partnership (TPP) agreement. There was open admonishment of currency and trade policy related to China with a threat to pose significant tariffs on Chinese manufacturing goods being shipped to the United States.
When the political realities set-in, the campaign rhetoric will likely focus on actions related to both China and NAFTA, but to what degree remains to be seen and assessed. The President Elect was not shy in calling out specific manufacturers such as Ford and Apple on their manufacturing investment strategies and lost U.S. jobs going to China and Mexico. Similarly, online buying and commerce has generally been allowed a free and open access to global markets. Global trade shocks could well spillover to online providers such as Amazon’s access to sell in certain overseas global markets.
For most multi-industry supply chains, it is likely a wait and see perspective at this point. For supply chains that currently have a high-profile sourcing dependency within China itself, there should be consideration for business impact. However, for those that have a stronger sourcing presence in Vietnam and other Asian countries, failure of the United States to support TPP has from our lens, trade and intellectual property protection implications. Like it or not, China today has garnered enormous power to influence basic commodity pricing which is another reality that must be balanced with sudden policy moves.
The obvious industry impacted by a harder currency and trade line with China is high tech and consumer electronics. A further industry is apparel and footwear. The high-tech supply chain with considerable China exposure is that of Apple. However, Apple is not alone from an overall high-tech perspective since the bulk of the industry’s component and final assembly value-chain originates in China. Clothing and sporting goods manufacturers have already moved some sourcing to other low-wage countries but high-margin and high-fashion goods remain likely sourced within China.
The commercial aerospace industry has a potential impact from a product demand perspective because so many of current booked orders involve China’s air carriers, reflecting explosive long-term demand for increased air travel across China. Retaliation to increased U.S. or even European tariffs could result in a demand focused backlash. Also from a demand perspective, a harder U.S. line on currency and trade policy has an obvious impact on global transportation carriers, and ocean container shipping lines that are already struggling with lower demand and significant excess capacity.
A hard line on shipping jobs to Mexico and the threat to build a wall on the U.S. border with Mexico has a potential impact on automotive manufacturers who have made significant strategic production sourcing bets for Mexico to serve as a major manufacturing hub for smaller and mid-sized vehicles serving North American and other geographical consumption markets. The President Elect threatened a 35 percent tariff on cars imported from the country and a backlash on borders could spill over to free movement of goods.
Overall, we might foresee a resurgence towards more accelerated near-shoring sourcing strategies to serve domestic product demand.
Environmental Policy and Climate Change
A Trump Administration is not likely to actively support global climate change initiatives and there is already speculation that U.S. policies related to clean and alternative energy buying and development incentives or electric car purchases will be quickly rolled-back. Campaign rhetoric shunned scientific climate change evidence and included the cancelling of large payments to United Nations sponsored climate change initiatives. Further speculation points to lifting existing restrictions related to oil pipeline construction from the Bakken region, adding a further long-term demand blow to North American railroads. However, to appease coal country voters, the lifting restrictions on coal use would be a commodity movement offset for railroads.
We tend to agree with others including Kevin O’Mara of SCM World that it may be just a matter of time before a Trump administration withdraws support for the Paris climate change initiatives which will serve as a big disappointment to current signors, and could result in added backlashes directed at U.S. produced goods.
This author has already openly stated that a sustainably focused supply chain strategy should serve as the component of a broader overall sustainable business strategy. Current sustainably focused initiatives could well be sidelined by ongoing political events.
Global Economic and Consequent Supply Chain Strategy Trends
The entire Trump Presidential campaign was predicated on shock and bold statements related to the United States being far more aggressive in world markets. Hopefully, such statements will moderate with the realities that U.S. based businesses need to continue to benefit from access to such global markets. Already, corporate CEO’s from Boeing, General Electric, Procter and Gamble and United Technologies who each have a major stake in sustaining global business expansion have reached out to the President Elect seeking to promote what was described as “healing and reconciliation.”
Mr. Trump promised a new tax policy that reduces overall corporate tax rates and will likely allow corporation to move accumulating overseas profits back to the U.S. or elsewhere without substantial tax consequences. The re-patriating of overseas profits triggers the potential risk of other nations seeking more of their fair share of taxation from overseas based corporations, as demonstrated by the European Union’s latest efforts to collect hundreds of millions in added taxes from Apple that were sheltered by Irish tax shelter laws. More local based taxation implies added supply chain movements for inventory and production declarations.
All of the above may well provide an incentive for more near-shoring or increased investments in U.S. and major geographical hub based supply chain capabilities.
However, the largest risk is additional shocks to the overall global economy which is already struggling to bounce back from the prior financial meltdown led global recession. With the threat of more populist sentiments, additional political shocks within other countries such as in Europe, or a complete loss of confidence in global financial structures and currency values, anything can happen.
Technology and IP Protection
A nationalist agenda within the U.S. can well trigger prohibited access to advanced technology across the globe or to local intellectual property provisions that require more sharing and less protections of trade secrets. Certain technologies could be banned, or certain products could be subject to added securitization by regulatory and domestic product safety agencies. This is likely an area of greatest strategic risk and businesses have already experienced such effects in China. A chilling or clash of trade policy among the U.S. and certain other large countries can trigger many ancillary effects. Access to technical talent or IP residing in non U.S. countries could well be even more restricted or shutout all together. Likewise, access of U.S. citizens possessing critical technology skills could be banned from entering other countries without agreeing to waive intellectual property or trade secret disclosure.
We certainly trust that cooler discourse will ultimately prevail but for now, supply chain teams need to think about any of the above implications and their impacts on current supply chain sourcing and distribution strategy.
Indeed, we are all about to enter a new phase of uncharted global uncertainty with added shocks to come.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
We would like to alert our Ferrari Consulting and Research Group clients and our Supply Chain Matters readership that our Q3 2016 Newsletter published yesterday and should be in the email inboxes of those who have subscribed.
Our latest newsletter again reinforces important trends brought forward by developments this past quarter.
Global manufacturing and supply chain activity as recorded by the JP Morgan Global Manufacturing PMI index reflected some bounce back but otherwise the long-term trend of low growth prevails.
Among Developed Regions, there were mixed signals with Japan and Taiwan experiencing stronger demand conditions but the United States experiencing some setbacks. GDP in the United States was reported to be a disappointing 1.2 percent in the second quarter.
Emerging Regions reflected slower growth momentum in Q3. Manufacturing and supply chain activities continue to improve in India, but there was some moderation reflecting on the prior growth levels within Mexico, Vietnam and Indonesia. Activity across China moved to expansion level however, the rate of expansion is characterized as marginal.
Among other Newsletter articles for Q3:
- Significant Industry and Supply Chain Developments in Q3- the quarter was dominated by significant and highly visible supply chain related news and developments. That included the emerging financial fallout from Volkswagen’s cheating on emissions levels over a year ago. Samsung’s unprecedented sales and production suspension of the Galaxy Note 7 smartphone after continuing reports of fire and explosions with this device dominated media channels, as were the emerging implications and learning. In global transportation, The Hanjin Shipping bankruptcy events cascaded among multi-industry supply chains and provided the wake-up call to the extent of industry overcapacity and more pending consolidation. Wal-Mart’s revised strategic emphasis on online shopping, and fulfillment capabilities coupled with additional retailers announcing permanent closings of physical stores motivated us to declare that the retail industry has entered a new phase of online and omni-channel fulfillment.
- China Investing in Broad Industry Value-Chain Capabilities- we highlight a recent report from The Wall Street Journal reporting on the trend of more of China’s manufacturers turning to domestic sourcing of key components, with a government strategy emphasizing more value-chain sourcing within that country. More and more product value-chain component suppliers in-turn are developing world-class manufacturing capabilities at lower inbound costs for China’s end-item manufacturers. All of this has implications for broader global supply chain activities and global trade.
- Vietnam- Asia’s Next Manufacturing and Supply Chain Tiger– we highlight a report by The Economist for why the country is increasingly becoming a new end item manufacturing and component sourcing destination for many industries which include strategic cost advantages in areas such as workforce, geography, policies and global trade.
- Record High Global Supply Chain Risk– we also highlight the latest report of the CIPS Risk Index which reportedly rose to its highest level in nearly two decades. The existing rise in global supply chain risk is attributed to heightened geopolitical risks, to include the unknow effects of Brexit and the U.S. Presidential Election, the extent of the growth slowdown and protectionist trends within China, emerging markets financial vulnerabilities and increased terrorism impacts on global cross-border movements. CIPS recommends that supply chain teams gain clear visibility of the supply chain, and with continued exchange rate downside risks, that teams consider paying suppliers ahead of contracted payment.
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Thanks again for your continued readership.
Bob Ferrari, Founder and Executive Editor