Preparing Global Supply Chains Against Uncertainty
Guest contributor: Sundar Kamakshisundaram
As the global economy continues its post-recession roller coaster of ups and downs, companies are still struggling to assess, prepare for and manage disruptions in their supply chains. Supply risk remains a constant threat to companies regardless of their size or the industries in which they operate. Buyers and suppliers need to prepare to shift their supply chain strategies in a moment’s notice in the event of natural disasters or other supply chain disruptions. This can help to avoid shipping delays and crises that can occur, and have occurred in recent years as we’ve seen earthquakes, tsunamis and volcanic eruptions devastate global supply chains.
As the gap between low-quality and high-quality borrowers grows, more suppliers will experience cash flow problems. Third-party supply chain financing options exist today that enable buyers to hold onto their cash and suppliers to be paid early at far more competitive rates than traditional factoring or card providers allow.
Buyers can use their good credit rating to help suppliers borrow at lower rates than they could achieve on their own. The result is a healthier and more productive relationship and supply chain. Buyers who have the capital to pay suppliers early can offer suppliers accelerated cash flow through dynamic discounting, which gives suppliers quick access to capital by offering discounts in exchange for early payment.
By joining together to optimize working capital and lower overall costs, buyers and suppliers can dramatically reduce risk and create the strong relationships that will not only protect themselves in the short term, but also give both sides greater flexibility in pursuing opportunities in the long term.
As outsourcing, consolidation and globalization continue, supply risk will grow as a significant source of overall business risk. What other steps can companies take to mitigate the impact of supply chain disruptions and ensure goods are still shipped and received on time?
1) Include risk management in your sourcing strategy. Revisit your sourcing process, Requests for Proposal, etc., to confirm that risk management is adequately addressed in your evaluation by all of your buyers.
2) Audit the financial, operational and balance-of-trade exposure of your most strategic and mission-critical suppliers. Too often, investigation of supplier solvency and dependencies are limited to the initial sourcing project. You need only to open a newspaper or turn on the nightly news to realize that the health of even the seemingly most stable companies can degrade quickly.
3) Look for early warning signs. Drops in quality or shipment delays can be indications that the supplier has cut too deep into its operations. More frequent requests for early payment or changes in sales and support personnel should also raise a red flag.
4) Increase the frequency of supplier performance reviews. In the face of highly volatile markets where credit is tight, reviews should be done at least quarterly with your most strategic and mission-critical suppliers and semi-annually with your next tier of suppliers.
5) Automate your supplier management process. The above actions may be time consuming, but they’re well worth the effort, considering their risk avoidance potential. Leading spend management organizations are simplifying this process by leveraging supplier management tools that combine self-service portals for suppliers to publish and manage their own profile information; scorecarding and performance measurement utilities; and project management capabilities for corrective action management. Use of such tools can improve visibility, control risk and enable you to extend supplier management to a broader portion of your supply base.
In today’s economy, the only thing that is certain is that companies will face more supply risks and challenges than ever before. With the right tools, they can assess their risks and manage them effectively.
EU and US agree end to Airbus-Boeing supply chain tariffs
The EU and US have agreed to resolve a 17-year dispute over aircraft subsidies, suspending tariffs on billions of dollars' worth of goods that have plagued procurement leaders on both sides of the Atlantic.
Under an agreement reached by European Commission Executive Vice-President Valdis Dombrovskis and US Trade Representative Katherine Tai on Tuesday, the tariffs will be halted for a period of at least five years.
It will bring an end to punitive and disruptive levies on supply chains that have little to do with the argument, which became embroiled in the trade battle. Businesses on both sides of the dispute have been hit with more than $3.3bn in duties since they were first imposed by the US in October 2019, according the EC.
The US imposed charges on goods upto $7.5bn in response to a World Trade Organisation ruling that judged the EU’s support of Airbus, its biggest aircraft manufacturer, unlawful. A year later in November 2020, the EU hit back. The WTO found the US had violated trade rules in its favourable treatment of Boeing, and was hit with EU duties worth $4bn.
In all the tariffs affected $11.5bn worth of goods, including French cheese, Scotch whisky, aircraft and machinery in Europe, and sugarcane products, handbags and tobacco in America. Procurement leaders on both sides of the fence were forced to wrestle with tariffs of 15% on aircraft and components, and 25% on non-aircraft related products.
Boeing-Airbus dispute by the numbers
- The dispute began in 2004
- Tariffs suspended for 5 years
- $11.5bn worth of goods affected by tariffs
- $3.3bn in duties paid by businesses to date
- 15% levy on aircraft and 25% on non-aircraft goods suspended
Both sides welcome end to tariffs
European Commission President Ursula von der Leyen branded the truce a “major step” in ending what is the longest running dispute in WTO history. It began in 2004.
“I am happy to see that after intensive work between the European Commission and the US administration, our transatlantic partnership is on its way to reaching cruising speed. This shows the new spirit of cooperation between the EU and the US and that we can solve the other issues to our mutual benefit,” she added.
Both aircraft manufacturers have welcomed the news. Airbus said in a statement that it will hopefully bring to an end the “lose-lose tariffs” that are affecting industries already facing “many challenges”. Boeing added that it will “fully support the U.S. Government’s efforts to ensure that the principles in this understanding are respected”.
The US aerospace firm added: "The understanding reached today commits the EU to addressing launch aid, and leaves in place the necessary rules to ensure that the EU and United States live up to that commitment, without requiring further WTO action."
This week’s decision expands upon a short-term tariff truce announced in March this year. The EC says it will work closely with the US to try and further resolve the dispute, establishing a Working Group on Large Civil Aircraft led by each side’s trade minister.
Airbus last month signalled to suppliers that post-pandemic recovery was on the horizon, telling them to scale up to meet a return to pre-COVID manufacturing levels. “The aviation sector is beginning to recover from the COVID-19 crisis,” said Airbus chief executive Guillaume Faury, adding that suppliers should prepare for a period of intensive production “when market conditions call for it.”