Econ 101: In turbulent times, supply chains must take notes
The post-Great Recession economic expansion shows significant signs of weakening. Tariffs and trade wars, reshuffled trade agreements like the still unratified USMCA, unpredictable political and economic alliances and changes in global body politics are currying no favor from the business community.
From Detroit to Brexit to China and beyond, vague economic threats and counter threats may be fodder for the breaking news junkies, but they run counter to normal business planning and operations.
This economic and political agitation has created an aura of uncertainty and anxiety across the global economy, impacting well-entrenched and freshly-minted supply chains.
Follow the big fish
Most of us are not sitting atop a Fortune 500 company wondering how to reposition our companies for the next wave of global economic growth. Nor do we have a staff of economists modeling various scenarios. But we can learn a lot from companies that are making critical moves in this shifting economy.
Consider Harley-Davidson’s decision to move some of their U.S. production overseas in order to offset EU tariffs, imposed in response to U.S. tariffs on steel and aluminum exports to the United States. Or look at Ford’s recent announcement that tariffs on raw materials have cost the company $1 billion so far.
These high profile companies are the tip of the iceberg, with many companies resetting strategies to deal with tariffs and related economic and technological uncertainty. Granted, all of these moves are not just because of existing or threatened tariffs, but they may have provided an impetus for new strategic directions.
We can learn a lot from companies that are making critical moves in this shifting economy.
Supply Chain Dive
On that note, watch for mergers, acquisitions and divestitures as well. These activities are representative of changes throughout the business community. While we may read about the big deals on our favorite financial portal, just under the surface all sized companies seem to be playing a game of musical chairs as they reposition in response to current economic threats, or for the next economic cycle. A company sale, spin-off or closure offer unpleasant surprises that can have long-term ramifications, upending a supply chain overnight.
Look for patterns, clues and insights from big fish companies that have a bevy of economists, analysts and other professionals on staff that allow them to make large scale and proactive decisions, well before the rest of the business world knows about them.
Simple questions, complex answers
Any plant closure or restructuring reverberates exponentially through the supply chain with layoffs and closures of their own, painfully snowballing downstream throughout the extended supply chain.
GM’s recent decision to close five plants was not a quick one, but one based on consumer behavior, economics, financial modeling and future manufacturing and customer requirements.
Too many supply chain managers ignore not only the big headlines like the GM closures, but the smaller ones as well, including changes within their particular industry.
The questions they should be asking are simple, but may have complex answers.
What is the impact of this news on our company, our suppliers and our supply chain?
This is a turbulent time, and we need to pay attention.
Supply chains on the forefront of change
Global supply chains are certainly in a bit of a pickle these days. Long-term alliances that have been working pretty well are now in a state of flux. Many companies, after trying to separate rhetoric from action, are now moving operations out of China and into other low-cost countries to overcome uncertainty over trade war concerns. Some are repatriating operations to the United States to gain stronger control and reduce risk — but potentially raising costs.
Supply chain managers often get a whiff of market changes before they happen. They can use this to their advantage to take a proactive and anticipatory approach to changes in their supply chain.
Tariffs and trade wars don’t last forever, but the lessons learned by navigating through them do.
Supply Chain Dive
Customer activity provides excellent insight into economic cycles.
I worked for many years in the semiconductor capital equipment industry in a variety of procurement and supply chain-related positions. Our customers, the big fish of integrated circuit manufacturers, used the equipment in wafer fabrication facilities around the world. The semiconductor industry was considered a leading and lagging economic indicator, forecasting an economic upturn, or downturn, about six to nine months before the rest of the economy reacted. As a prime supplier, my company was forced to react to these changes almost immediately in our sales and operations planning.
A flurry of purchase orders to our suppliers during slow economic times foreshadowed a positive bump in the economy, and suppliers could plan accordingly. This was also a good time to negotiate pricing and capacity agreements.
During strong economic times, deferred deliveries and canceled orders warned of an upcoming economic dip, once again allowing suppliers to plan for leaner times. As these cycles repeated and were validated, forecasting throughout the extended supply chain became more streamlined and accurate, with suppliers looking to us for economic trends.
Take advantage of your strong supplier relationships to keep track of changes to your own supply base and the extended supply chain. Keep in touch with key suppliers and customers and share and exchange pertinent information. Increase scenario planning to identify "what if" strategies for key areas of the supply chain. Fine tune those risk profiles as well.
And finally, embrace the action. As a profession, we are at the forefront of seismic economic changes. Pay attention to what is going on in the global economy and be a resource for your company. Tariffs and trade wars don’t last forever, but the lessons learned by navigating through them do.