Supply chains and adjusting to Trump: think local and global

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KateVitasek_540x800.JPGIt’s still early in the Trump presidency, but not too early for supply chain professionals to begin planning for what could be major challenges in global markets and trade agreements, especially if President Donald Trump follows through on border tariffs, the dismantling of existing trade agreements, and other “America First” protectionism ideas he has shared as part of his Twitter-storm rhetoric, writes Tennessee University Professor in Supply Chain Management, Kate Vitasek.

One discussion topic among procurement and supply chain professionals is the resurrection of the age-old “near-shore/on-shore” debate, and whether (and when and where) supply chain professionals should either locate their own assets or build relationships with suppliers.

An early viewpoint from the January meeting of political and business movers and shakers in Davos is that thinking too globally might not be the wisest strategy: a shift to “localising” operations is a good fall-back position.

“The basic message is to be more national, don't just be global,” Richard Edelman, CEO of the communications marketing firm Edelman, told Reuters at Davos. “Let’s try and pre-empt that tweet by having a long-term discussion about the supply chain.” The ‘Trump effect’ on trade/globalisation “could mean increased investment in the U.S.,” added Joe Jimenez, CEO of Novartis International AG, the huge multinational pharmaceutical company based in Basel, Switzerland.

Supply chain partners must be ready to adjust

“Supply chains will have to adjust,” says Tim Feemster, Managing Principal, Foremost Quality Logistics, in an interview. “Organisations with global supply chains are realising that regionalisation makes sense, because costs are reduced and speed to market is faster.” Automakers, for example, have known this for some time.

However Feemster is quick to point out that “free trade makes us better, rather than protectionism.” Feemster continues, "in general, NAFTA [the North American Free Trade Agreement] has been good for all three countries, the U.S., Canada and Mexico. But there are pockets of winners and losers, and as Trump says, ‘thinking big’ allows more boats to rise, but some boats won't do as well.”

In a report, “2017: Bracing for Instability in Global Trade,” Gary M. Barraco, Director, Global Product Marketing, Amber Road, says the message for supply chains in this emerging, uncertain trading environment is that they will have to manage potential and unexpected disruptions with greater visibility, flexibility and collaboration.

Investments in adaptability, flexibility and collaboration efforts aimed at increasing transparency are key components that will benefit any organisation in the era of Trump uncertainty.

Near-shoring and on-shoring

Companies evaluating the effects of the Trump administration’s goal of returning manufacturing jobs on a large scale to the U.S. should begin the process of evaluating their supply chains to understand if near-shoring or on-shoring options are viable options.

But what is the best strategy to follow when a company should begin efforts to “reverse” or adapt globalisation to ‘America First’ policies? The answer is it's complicated, mainly because globalisation cannot be easily unravelled. The reality is that Apple, for example, could not produce all of the components that go into the iPhone in the U.S. even if it wanted to. That is also true for automakers as well: cars produced and assembled in the U.S. contain parts from all over the world. “There is no doubt we need to adapt,” said Carlos Ghosn, chief executive of Renault-Nissan, who was quoted in the Reuters report. “All car-makers have to revise their strategy as a function of what is coming.”

Near-shoring is already happening. For example, Feemster notes that Mexico - a major near-shore location for products manufactured for export to the U.S. - has more than 100 trade agreements with other nations, while the U.S. has about 20. This has placed Mexico in a powerful position and a near-shore destination of choice vis-à-vis supply chains and how (and where) they operate. Mexico has become strategically important from both a location and quality standpoint for many companies, including Volvo and Mercedes.

Ryder’s Exchange Blog noted, for example, “the trade benefits of NAFTA make Mexico an ideal sourcing partner.” In addition, “lower labour and shipping costs and proximity to facilities create a compelling case for keeping manufacturing, production, and assembly a drive or short flight away.”

Businesses are also thinking locally to mitigate currency risks in certain markets. “Food companies in Britain, for example, which have seen their costs soar after sterling plummeted in the wake of the Brexit vote, have started moving toward local suppliers where possible to keep costs down,” Reuters reported.

Originally published on Forbes.com

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