Since ancient times, trade deals have been struck with foreign countries. You could say that trade and tax were the spark that has ignited revolutions and wars.
The promise for the US to abandon the Trans-Pacific Partnership, coupled with the UK vote to leave the EU and change trade agreements across Europe, is raising concerns and signaling an anti-free trade sentiment. Free trade advocates are disappointed for sure and the future is uncertain.
The political climate has changed, bringing more focus on a reshoring movement in the US. Many of us in procurement were driven to support low cost country sourcing. Whether moving sources back to the US or with the potential of tariffs, duties and increased fees, our strategy and profit plans could be at risk.
While we don’t know what will evolve in terms of the future of trade, there are opportunities and risks. The opportunities will be presented if the US renegotiates trade deals to take advantage of the ability to drive US exports. The risks come if trade deals do not happen and increase costs to protect US manufacturing hurt the bottom line. I’m advising my clients to:
- Review all internationally sourced components
- Understand the strategic nature of all of the internationally sourced categories
- Identify opportunities for alternate sourcing
- Understand items with high capital investment and technology as a driver (and the implications of not being able to switch suppliers)
- Create a currency strategy
- Drive best value sourcing
It’s always better to be prepared than surprised.
What’s your plan?
This week’s Wall Street Journal really made me think about how procurement and Supply Chain Professionals must modify strategic direction to help their firms survive; Apple’s overall revenue declined 14.6 %. Caterpillar reported another sharp decline and cut back its outlook indicating the 4-year slide will continue and 3M also trimmed its sales outlook.
While these news stories show slow economic growth, they should serve as an alarm to professionals in procurement and supply chain–it is essential that the total focus includes process redesign, aligning the supply chain and implementing lean techniques. From my experience, I understand that cost improvement is the key to survival to organizations experiencing sales decline.
- Supply chain leaders must understand lean and apply waste reduction and productivity improvement across all tiers of the supply chain. When profits are falling, it is essential that all organizations capture all leakage of profits through waste and lost productivity.
- Procurement and supply chain processes be reviewed and redesigned to assure that the total focus and mission relates to cost improvement, which assure that all effort is dedicated to the task at hand maintaining profitability in the wake of falling sales. This doesn’t mean just price reduction, but true total cost improvement.
- Procurement must align its suppliers with the mission of cost improvement. Suppliers must understand that the current economic conditions require supply chain alignment and lower cost to survive declining sales.
While these things are common sense, it is essential that as supply chain and procurement leaders, we have a direct impact on profitability, shareholder value and, ultimately, we have a fiduciary duty to help the organization weather the economic storm and survive.
We asked for a seat at the table; the time for action is now.