Gravity Supply Chain Solutions: Mitigating the risks of trade wars and tariffs
As trade wars heat up, businesses need to protect their profit margins from increased tariffs. Gravity Supply Chain Solutions CEO, Graham Parker, explains how this can get achieved by digitising the supply chain.
Optimism over an end to the trade war between the U.S. and China seems to have grown further following an extension to the original 90-day trade deal truce, which was due to expire at the beginning of March. However, the U.S. government alleges that the CFO of the Chinese telecoms giant, Huawei, has broken U.S. trade sanctions, and accuses the company of acting as a backdoor for the Chinese government to access U.S. trade secrets, subsequently passing a law that bans federal agencies from buying their products. Huawei, in return, now intends to sue the U.S. government.
In the wake of these allegations, growing hostilities between the two nations could result in trade wars intensifying yet again. For businesses, this would likely mean more rising tariffs. The immediate impact of the tariffs is that they make it more expensive for American companies, manufacturers, retailers, and suppliers, to import products or raw materials from China. American firms will also find it costlier to export goods into China.
China is the largest trade partner of the U.S. according to the U.S. Census Bureau, which estimated that bilateral trade between China and America, reached US$636 billion in 2017, and given this fact, it is highly likely that the reciprocal tariffs will increase the costs of a large proportion of U.S. based companies.
Many noteworthy U.S. corporations have already attested to this fact. For example, General Electric stated that new tariffs on its imports from China could raise its costs by US$300 million to $400 million. Caterpillar claimed U.S. tariffs on imports from China would increase its material costs by around US$100 million to $200 million in the second half of the year.
Protecting Your Business From Tariffs, And Trade Wars
In light of these increased costs of importing from China, companies may choose to absorb the higher expenses which will lower their margins, or decide to pass on the increased costs to their customers by raising the prices of their goods. However, this may reduce demand for their products, negatively impacting sales.
The most effective way for companies to cushion the impact of tariffs is to find ways to make their business run more efficiently which will reduce operating expenses, and offset any increased costs due to tariffs. One powerful way of making business more efficient is through digitisation of the supply chain.
Digitising The Supply Chain
Here are three ways that digitisation of the supply chain can improve business revenues and margins, and offset the impact of tariffs.
1) Removing the pain points of laborious manual processes
Supply chains are complex operations, with hundreds or sometimes even thousands of people involved. While recent technological advancements have made supply chain management easier, many companies still rely on manual processes to collect, review, and input data; including manual data entry - keying in data for purchase orders, bookings, invoices, or quotes - which often involves copy and pasting such data from another system. If you multiply this type of repetitive, mundane activity, by the number of times an employee performs the operations throughout the working week, it equates to a great deal of wasted time. Manual tasks are also hugely error prone, inconsistent, and difficult to track, resulting in poor visibility, and insights that are inherently flawed due to being based on substandard data which makes it challenging to stay on top of what’s happening in the supply chain, and diminishing the ability to make smart data-driven decisions.
Businesses can invest in a digital supply chain platform that automates such data entry by automatically collecting, and updating the data from across the many relevant sources, all accessible in a single system, rather than spread across multiple systems that don’t communicate. Such automation streamlines workflows, resulting in the reinstatement of the many previously wasted working hours while saving the company money as a direct result of the management of the supply chain getting performed at a much faster and more efficient rate. For example, automating the process of choosing the best sailing schedules for 100 major ocean carriers, covering over 90 percent of global container capacity, will give managers more time to spend on activities which grow the business, such as negotiating better vendor prices.
2) Accelerating speed to market
In today’s world and thanks to the likes of Amazon, smart technologies and mobile devices, consumers want products as quickly as they can get them. Businesses which fail to provide their customers with what they want, as soon as they want, will lose sales opportunities, and market share, to competitors.
The ability to get products to consumers quickly is contingent upon the speed of a company’s supply chain. Primarily, a digital supply chain provides real time visibility on the movement of goods across a company’s supply, and logistics networks, from product conception, to transit, to arrival at destination. This visibility allows companies to make data-driven decisions to ensure the timely delivery of products. As an example, an early warning that announces if a shipment might become delayed due to port congestion; allows for a company to take remedial action, such as air freighting inventory from another warehouse, to compensate for the delayed shipment.
Furthermore, a digital supply chain provides a single platform through which all supply chain partners ranging from businesses to logistics providers, to suppliers, can all share information, and collaborate seamlessly, facilitating teamwork, and reducing misunderstandings, all of which contribute to a faster delivery timeline.
Lastly, the automation of manual processes as mentioned above means less time gets wasted on administrative work, allowing for more time to get spent on optimising deliveries.
Through faster speed to market, companies could also increase their sales and revenue.
3) Reducing the costs of product sourcing
When a company’s regular suppliers are charging extra due to tariffs (or any other reason), organisations are forced to look for alternative supply partners or even new supply markets that can offer better prices. A digital supply chain platform can support sourcing teams to make the data management aspects of this process seamless, by providing a single platform to onboard vendors, send briefs, and receive and compare quotes all in one place (rather than spread across various emails, systems, and documents). In this way, a business can take new vendors onboard and compare their quotes quickly and painlessly, so allowing them to identify which vendor is offering them the best value quickly.
Tariffs, like corporation tax, are external economic pressures, which affect the bottom line of companies, over which businesses have little, or no control. The supply chain is, however, something which companies do have control over. By digitising their supply chains, companies can become much more efficient at what they do, helping them offset tariffs and other external economic overheads.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”