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Trump & Brexit: Adding Risk in the New Global Supply Chain

The world is changing. We have already seen customer expectations pushing manufacturers toward shorter lead times, higher customization and these expectations are putting stress on global supply chains.

As we move throughout 2017, the anticipated impact of Brexit and of the stated “America First” agenda of the Trump administration is getting more and more attention. Supply chain executives are paying close attention to the implications of what trade might mean under these new rules. Changes — or even complete withdrawal — of trade agreements might result in new trade rules, trade restrictions and new import tariffs. It might also add extra time, paperwork or delays to any international supply chain operation.  

 

The administration is now beginning to renegotiate the North American Free Trade Agreement (NAFTA), which could potentially undo over 20 years of free trade between Canada, Mexico, and the United States. The new administration also threatens to levy punitive duties on goods made in China. President Trump has also signed executive orders to withdraw the U.S. from the Trans Pacific Partnership.

In Europe, Brexit negotiations are starting. Whether a hard or soft Brexit ensues, we can be sure that in March 2019, the UK will no longer be part of the European Union. At this moment, it remains unclear whether these negotiations will result in the UK completely separating out of the European common market, resulting in separate trade agreements and restrictions. 

 

These proposed changes bring global supply chain risk and planning to another level. Risk, delays and additional burdens in the global supply chain are likely to rise considerably. This will cause buyers to temper their choices to more secure and dependable sources – even if some cost savings must be sacrificed.  

The automotive industry already employs a standard template for measuring supplier risk. The Materials Management Operations Guideline/Logistics Evaluation (MMOG/LE) defines a common, industry-wide set of best practices to help improve delivery performance. MMOG/LE is an assessment tool used to measure and improve materials planning and logistics efficiency within a manufacturing facility. 

With a riskier overall global environment, will other industries institute supplier risk management tools such as MMOG/LE? With uncertain policy changes, not only could automotive suppliers potentially face a wide range of business-critical issues, including shortages of raw materials, longer lead times disruptions, and IT systems not being able to keep up with new regulatory requirements or documentation. 

Now, and certainly well into the future, smart strategic planning is imperative to mitigate these concerns, especially as the globalization of supply processes increases.

Supply chain planning (SCP) software tools can help with more accurate forecasting and network optimization and provide more agility when tackling uncertainties. Given the potentially riskier environment, tools like cloud-based ERP systems and other cloud-based solutions could help. Quality management and Trade Compliance solutions, which have helped manufacturers in the last several years to deal with ever-evolving regulatory reporting requirements, will also continue to be adopted to ensure suppliers are meeting the standards set forth by regulators and customers.

Supply chain should be a board level attention point. Senior management must be committed to identifying supply chain risks within their respective companies, and then taking actions and implementing tools proportionate to those specific risk levels. In addition, organizations must prioritize, document, train, test, validate, monitor, and incorporate lessons learned for these identified risks, and turn to different industries – such as automotive — and different parts of the world for best practices. If risk isn’t planned for at this time of change, access to new business opportunities or existing operations could be in jeopardy. And, no organization wants that!

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