In the current climate of “economic populism,” tit-for-tat tariffs and the uncertainties surrounding Brexit, which can instigate trade wars and the disruption of global trade deals in Europe and the Pacific rim, buyers, sellers and their supply chains have an opportunity to step up and cope with major challenges through cooperation, transparency and flexibility.
This year is likely to be challenging on the global trade front. But it’s no time for global supply chains to panic or hunker down into an “us vs. them” mind-set. Now is the time to optimize your supply chain to make it highly collaborative, flexible and responsive to changing market dynamics.
Here are two things that supply chains will brace for in 2019:
· It's likely that tariff levels will go up to 25 percent, and because the tariffs are broadening, the auto industry says they are encountering up to $1bn in incremental costs as a direct result of the tariffs. At the end of 2018, GM announced it would phase out five sedan models, close plants, and cut up to 14,800 jobs, reducing costs by $4.5bn by the end of 2020.
· Other industries will also get hit, including technology and the construction industry. Construction currently acquires about $10bn in goods from China, and if tariffs move from 10 percent to 25 percent, there will be a big impact, especially with demand and interest rates affecting the overall economy.
Companies and their supply chains will need to ramp up their cooperation, says Steve Bowen, Maine Pointe CEO, “but the challenge in doing so is establishing a greater level of trust, which is difficult in the midst of a tariff battle.” Tariffs are not conducive to cooperation, so companies have to work harder at building cooperation and trust across the global supply chain.
Evaluate your supply chain in order to 1) optimize operational efficiency; 2) improve supply chain “optionality” by exploring new sourcing opportunities in regions not affected by tariff increases; and 3) gain market insights on where production facilities might move.
A University of Tennessee white paper, “End-to-end Supply Chain Collaboration Best Practices,” shows that a highly collaborative end-to-end focus on the supply chain enables organizations to achieve greater levels of efficiency and resiliency as supply chain partners collaborate to drive continuous improvement and innovations.
This is not easy: end-to-end optimization demands that supply chain partners move away from traditional transactional business models that focus on cost savings to models that focus on value creation. To make the shift, organizations must first understand the fundamental differences in value extraction, value exchange and value creation.
Successful supply chains should stress value creation, enabled by realistic end-to-end collaboration and win-win pricing models. By working as partners with a transparent, win-win mind-set, buyers and sellers can identify opportunities that they cannot see by working within their own walls. This strategic focus over the long term can motivate suppliers to invest in solutions they might not otherwise feel comfortable doing.
The bottom line in the Trump and Brexit era? Collaborate your way to better value-based profit levels by forging highly strategic supply chains that optimize across supply chain partners. The key is to create, expand and optimize the value chain through high collaboration and strategic partnerships that place them in a best-fit sourcing situation.
Kate Vitasek is a faculty member at the University of Tennessee’s Haslam College of Business Administration, and author of six books on the Vested business model.
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