In the current climate of “anti-globalism” or “economic populism,” tit-for-tat tariffs that 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.
It’s no time to panic or hunker down into an “us versus them” mindset. It’s never too late to optimize the supply chain to make it highly collaborative, flexible and responsive to changing market dynamics. But the clock is ticking.
Case in in point: Steve Bannon, President Trump’s former chief strategist, says the president is “reorienting the world’s supply chains” through tariff actions and the desire to rewrite – or scrap entirely – trade deals with Canada, Mexico and the rest of the world. Another related case in point: The New York Times reports that “6 Months Before Brexit, Many in U.K. Fear ‘It’s Looking Very Grisly.’”
“There are certainly risks of short-term disruption,” Dominic Raab, the Brexit secretary, said, quoted in the Times article in a recent interview with the international media. “We can manage down some of those risks, and we can avoid some of them,” he said, though he conceded that this was not completely in his power and that avoiding disruption “will require good will on both sides.”
On September 24, the latest batch of U.S. tariffs, which start at 10 percent and increase to 25% at the end of the year was imposed on $200 billion worth of Chinese goods. These latest tariffs are in addition to penalties implemented earlier this year on $50 billion worth of Chinese goods. This means that roughly half of the products that China sells to the United States each year will be hit by tariffs.
YOU MAY ALSO LIKE
In response, China announced duties on U.S. goods worth $60 billion. China’s new tariffs will be levied at rates of 5% or 10%, depending on the product. More than 5,000 U.S. goods will be affected, including meat, nuts, alcoholic drinks, chemicals, clothes, machinery, furniture and auto parts.
Other key U.S. trading partners, including the European Union, Canada and Mexico are in talks with the U.S. administration to avert the implementation of reciprocal tariffs on a broad range of products.
Optimize Your Supply Chain
Steve Bowen, Maine Pointe’s CEO and author of Total Value Optimization: Transforming Your Global Supply Chain into a Competitive Weapon, asserts there is no time like the present to “stress test” your supply chain and make changes on three fronts:
- Optimize supply chain and operations efficiency. Irrespective of the global trade war, there are still significant opportunities for companies to drive out cost, release cash and enable growth in the end-to-end supply chain.
- Improve supply chain optionality. Balance risk by exploring sourcing opportunities in countries that are not affected by the new tariffs. In addition, in some areas, now is the time to negotiate the best possible deals on any raw materials, intermediate or finished goods that are not impacted by tariffs. Bowen notes, for example, that “companies such as 3M and General Electric, which have diversified global supply chains, have expressed confidence in their ability to change their sourcing in response to cost increases.”
- Gain market insights on shifting production facilities.Assessing the viability of shifting production facilities to avoid tariffs is a more medium-term strategy for executives to consider. “For example, President Trump has suggested Apple Inc. should move its production from China to the U.S. to avoid cost increases, Harley Davidson has shifted production for EU destinations from the U.S. to its international facilities to avoid tariffs and Volkswagen group is taking advantage of its 122 factories worldwide to give it the ability to adapt to changing needs and requirements,” Bowen says.
He sums up his advice by saying, “The key for companies and their supply chains is to create, expand and optimize the value chain through high collaboration and strategic partnerships that place them in the best-fit sourcing situation.”
Focus on End-to-End Supply Chain Optimization
The key to coping with daunting and complicated trade politics should reside at the highest governmental levels. But considering today’s realities in the Trump administration, the next best approach is optimizing value at the supply chain level.
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 by any stretch. End-to-end optimization demands that supply chain partners shift from traditional transactional business models that focus on cost savings to models that shift to value creation. To make the shift organizations must first understand the fundamental differences in value extraction, value exchange and value creation.
Value extraction occurs when an enterprise attempts to shift value from one player in the supply chain to itself (a classic win-lose scenario), extracting profit and value from one member of the supply chain and transferring it to a leading player. This is often done using highly competitive bids and power-based negotiations approaches.
Value exchange is better, but still falls short because the parties’ focus is to optimize within their own four walls. In a fair and balanced value exchange, organizations check their power at the door and instead strive to get to a fair price versus value tradeoff (such as quality and service).
Successful supply chains can and should make the shift to focusing on value creation, enabled by realistic end-to-end collaboration and win-win pricing models.
By working as partners with a transparent, win-win mindset, buyers and sellers can identify opportunities that they simply cannot see by working within their walls. A longer-term strategic focus that includes transparency and a win-win mindset can motivate suppliers to invest in solutions they might not otherwise feel comfortable about.
Progressive companies are shifting along a sourcing continuum to more sophisticated and collaborative sourcing business modelsthat are built to make the shift to value creation, as seen below.
While the transactional approach certainly has a strong place in the market, organizations seeking productivity-driven improvements in an uncertain economic climate should shift to more strategic sourcing business models with the key suppliers that are more collaborative in nature.
The bottom line in the Trump era? Collaborate your way to better value-based profit levels by forging highly strategic win-win supply chains that optimize across supply chain partners.
This article originally appeared on FORBES