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


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.

The Toyota-Mazda U.S. Manufacturing Plant Announcement Must Factor a Changing Industry and Geo-Political Environment


Toyota Motor and Mazda Motor recently announced joint plans to build a new $1.6 billion auto assembly plant somewhere in the United States. The announcement prompted an immediate tweet from President Trump praising the decision.

Beyond the current industry and or politically motivated speculation as to where this plant will be ultimately sourced and built are today’s new realities of major industry supply chain sourcing decisions, including fundamental power-train value-chain differences.

The plant itself is reported to be of a size capable of producing upwards of 300,000, vehicles per year and employing roughly 4000, an average sizing by today’s industry practices. Production is to be divided between both automakers and the plant has been targeted to be operating in 2021, four years hence.  That timeframe has important significance, both from manufacturing strategy, technology sourcing as well as a geo-political dimension.

Let us explain.

In manufacturing strategy, the plan reportedly calls for the joint production of Toyota’s Corolla sedan and Mazda’s crossover SUV vehicles such as the CX5. In last week’s announcement, reports indicated that the two companies have been exploring various areas of joint manufacturing collaboration. More importantly, both companies recognize the strategic market shift toward vehicles less dependent on internal combustion powered vehicles, and more toward hybrid or electrically-powered vehicles. That has special significance in considering the 2021 timeframe. Mazda is especially in need of development of such vehicles, hence Toyota’s prior experience in its Prius hybrid and all-electric model family provides lots of proven product design and manufacturing experience. Subaru, reportedly also has a strategic partnership with Toyota for electrified vehicles.  Toyota Corolla Emblem 300x169 The Toyota Mazda U.S. Manufacturing Plant Announcement Must Factor a Changing Industry and Geo Political Environment

The fastest selling segment in the U.S. car market remains small to mid-sized crossover vehicles and the Toyota RAV4 stands out as a best-seller. To accommodate future demand, Toyota has linked its new Corolla U.S. sourcing decision with plans to boost RAV4 manufacturing capacity in the Canadian plant that currently produces the Corolla. The automaker will reportedly go-ahead with prior plans to construct the new manufacturing facility in Guanajuato Mexico, however that plant will now be designated to produce the popular selling Toyota Tacoma pick-up truck models, in-essence doubling existing production levels to accommodate rising demand across North America.

Now let’s turn to the geo-political dimension.

Toyota has been producing Corolla branded cars both in Canada and in the United States at a Mississippi production facility. In 2015, the Japanese automaker announced plans to construct a new $1 billion plant facility in Mexico, which was to be the new home of Corolla production. That caught the attention of the U.S. Presidential primary and election process, and specifically candidate Donald Trump who challenged the decision. In January, President Trump again criticized Toyota publicly for importing manufactured cars from Mexico to the United States while threatening to impose added tariffs on such cars. Mazda’s current sole presence in a manufacturing facility in Mexico, with lack of any current U.S. based manufacturing capability, exposes that company to trade and currency risks, given the current geo-political climate.

Let’s now turn to the actual process of U.S. plant site selection.

Reports indicate the eleven U.S. states are currently lobbying to land the new facility in their respective state. The short-listing is speculated to involve the U.S. South, Midwest, and Southwest regions. Many of the reported short-listed states have traditionally voted and elected Republican party candidates, hence another political dimension. Some business media publications point to the U.S. Southeastern region as a leading choice, from the notions of both a robust-network of existing just-in-time production focused automotive suppliers, existing modern transportation, and logistics capabilities, as well as tendencies to offer very attractive incentives to foreign-based manufacturers. The key determinant is noted to be labor force and best government incentives.

Supply Chain Matters hastens to add another determinant, one far more strategic. That of course, is the implied shift in power-train requirements in the 4-5-year timeframe, namely the inclusion of more lithium-ion battery packs in automotive product value-chain, along with lower direct-labor requirements via factory automation.

Current U.S. sourcing of lithium-ion batteries resides in the U.S. Western and Midwest regions, not to mention the flexibility or necessity of having such batteries or components shipped from Asian-based manufacturing. As our automotive industry-focused readers know all too well, batteries are heavy and rather expensive to transport over long distances. Thus, any direct labor or government incentives now need to be factored and balanced with the assumption of a more alternative energy focused product value-chain for Corollas or Mazda SUV’s. The good news is that automotive manufacturers have now matured auto assembly processes to be able to accommodate both predominate internal combustion and alternative energy powered vehicles on the very same assembly line.

From our lens, all the above implies that whichever state ultimately is chosen for siting, a key determinant will be strategic sourcing of battery production coupled with transportation and logistics capability and costs in the plant’s region.

The takeaway is that the tradition notions in automotive manufacturing that direct labor and local government incentives alone determine plant site selection are changing rather quickly with the increasing attraction, pricing and popularity of hybrid and electric-powered vehicles. A further new dimension is a reading of the geo-political environment in an era of increasing global trade tensions, one that features constant uncertainty as to tariff, trade, and intellectual property protection challenges. This week marks the start of talks focused on revisiting the NAFTA (The North America Free Trade Agreement), with the implication of an automotive industry highly dependent of the assumption of free-trade and movement of automotive value-chain components.


Bob Ferrari

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

Additional Reaction to the Foxconn U.S. Investment Announcement


Supply Chain Matters provides a brief update on Foxconn’s formal announcement of a significant investment in a U.S. manufacturing facility.  At a White House ceremony held on July 26, Foxconn Chairman and CEO Terry Gau made the announcement flanked by a host of Wisconsin State and U.S. Congressional leaders, and later, President Trump.  Foxconn 300x201 Additional Reaction to the Foxconn U.S. Investment Announcement

The new $10 billion factory, to be located and built in Southwest Wisconsin represents employment of upwards of 3000 people initially and as many as 13,000 people at peak capacity. Further indicated was that upwards of 22,000 indirect jobs could also come from the new plant at peak capacity. CEO Gau indicated in the White House ceremony that Foxconn, through its new subsidiary, Sharp Corporation, will introduce the latest 8K LCD technology for applications across many industries including automobile displays, medical devices, televisions, and smartphones. This initial investment planned by Foxconn designed to rebuild a high-tech electronics supply chain within the United States and there are already reports of a pending announcement for an additional electronics production facility in the State of Michigan.

Roughly three weeks since this announcement and there are already differing views and stated skepticism regarding the viability of this announcement.

First, the overall impact and magnitude of the announcement was somewhat muted by the kaleidoscope of conflicting Trump Administration events consuming the news cycle that week. Not lost by social media and cable news was the irony of the States in the short-list, all being those that predominantly voted for Mr. Trump, something that this blog pointed-to as-well. The final selection being in the home state of the Speaker of the House of Representatives comes with its own political irony.

Coverage by general media such as the New York Times and the Washington Post was quick to note that Foxconn has in the past, demonstrated a track-record of not following-thru in its multi-billion-dollar plant commitments. In other regions such as Brazil, India, Indonesia and Vietnam, investments have fallen far short of expectations, as well as a $30 million commitment to build a factory in Pennsylvania four years ago.

Then there is the magnitude of the overall $3 billion in incentives to be provided by the State of Wisconsin and its taxpayers, reported to average $15,000 to $19,000 per job, annually. One expert at a nonpartisan non-profit research firm in Washington classified the Foxconn deal as the fourth-largest incentive deal in the United States.

A report from a Milwaukee newspaper indicates that taxpayers would have to wait upwards of 25 years, until the year 2043, to be able to recoup the payments to be made to Foxconn. Reported was that a state fiscal bureau found that over the next 15 years, state taxpayers would pay upwards of $1 billion more to Foxconn than the additional taxes that would be generated. A spokesperson for the State’s Governor indicated that such a trade amounts to an excellent investment for the State of Wisconsin.

Then, we have the “tweet” by President Trump, two days before the Foxconn announcement, indicating that Apple CEO Tim Cook informed him that Apple would have forthcoming announcements of significant announcements in building three manufacturing plants in the U.S. During Apple’s recent financial performance briefing last week, CEO Tim Cook seemed to dampen such expectations, indicating that Apple remains committed to creating jobs through payments to applications developers and orders to U.S. suppliers. Such statements beg the question of where did President Trump get his information or is there some quid-pro-quo negotiations underway behind the scenes.

The bottom-line, from our lens, is that Foxconn cannot afford to short-change its stated commitments to a U.S. Manufacturing presence.  The announcement represents a business decision with wide-ranging benefits to Foxconn as well as its major customers, including Apple and others. It also represents a politically-charged decision, where Foxconn obviously played to the various dimensions of local, state, and national politics. If one plays with fire, best that one continues to monitor the overall temperature. Especially in an environment where the risk of bi-lateral trade wars could break-out at any time.

Bob Ferrari

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

Job Openings and Hiring in the Eurozone and U.S. Mark All-Time Records


Earlier in the year, one of our published 2017 Predictions for Industry and Global Supply Chains called for a supply chain talent perfect storm, one that we believed would occupy more of the management attention of supply chain and business leadership. From ongoing data, that prediction seems to be holding true at the mid-year mark.

The U.S. Bureau of Labor Statistics reported this week that the number of job openings approached a record 6.3 million at the end of June. According to Reuters, that number represented the highest reported openings since the Labor Department began tracking this metric 16 years ago.

U.S. Job openings in June increased by 179,000 in the category of professional and business services, an area that is closely aligned with supply chain management needs. Our prediction was predicated on the need for industry supply chain teams to take on a more industry advisory focus in their respective organizations to support simultaneous strategic, tactical, and operational support needs, coupled with augmented technology applications that enhance decision-making.

Likewise, in both May and in June, a combination of improved order inflows and rising order backlogs caused the manufacturing sector spanning the Eurozone countries to add jobs at the fastest pace recorded in the past 20 years.

The perfect storm relates to the prospects of 2017 providing even more overall pressures to reduce supply chain costs while supply chain remains agile to increased external events.

Supply chain leaders are faced with difficult choices regarding the existing workforce. Executives who previously established multi-year plans to broaden skills and talent now face the reality that talent needs are now more immediate as available external labor pools are increasingly diminished by market supply and increased demand forces. The growing gaps in hiring are another signpost that existing workers do not have adequate tools and training opportunities because business or government training investment activities continue to lag.

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. That will lead to more job-hopping, affecting even those companies that had taken the initiative to train existing employees. Efforts to increase U.S., North America or Eurozone based manufacturing capabilities now face the reality of an increasing lack of available skilled manufacturing and supply chain related talent.

We again urge our readers through their existing organizations to share what talent recruiting, management and retention programs have garnered positive contributions for their businesses and supply chain organizational needs, along with efforts that incent skilled employees to stay-on.

The talent perfect storm is obviously deepening and proactive cross-business initiatives as well as knowledge sharing is rather critical at this point.

Bob Ferrari

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

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