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Supply chain risk and supply chain agility – the wake-up call from Trump and Brexit

It’s official: in the event of a ‘no-deal’ Brexit, the UK government is currently drawing up plans to charter ships. The idea, it seems, is to run special ferry services to bypass the busy Dover-Calais route, which civil servants fear could quickly become congested.

Over the Atlantic, American businesses might be forgiven for wishing that the Trump administration was taking such a pro-business stance. As tariffs on Chinese imports begin to bite, many manufacturers are finding that margins are shrinking, and earnings coming under pressure.

Nor is the problem only with Chinese imports. Car makers have long structured their supply chains in order to pull in parts—and entire vehicles—from Mexico and Canada. NAFTA’s demise, at least in its present form, spells an end to such cosy and cost-effective arrangements.

Clearly, both Brexit and the present US-China trade tensions highlight the importance of taking into account both supply chain risk and agility when making sourcing decisions. The cheapest supplier today may not be the cheapest supplier tomorrow—or even a sustainable or viable supplier tomorrow.

Should businesses be blamed for failing to predict Brexit, or Trump? Of course not. While some element of scenario forecasting is appropriate when making sourcing decisions, what is taking place today would have seemed almost unimaginable when many sourcing decisions were being made.

But that isn’t to say that businesses are necessarily blameless in all respects. One thing is crystal clear when listening to businesses’ complaints about both Brexit and US-China trade tensions: when it comes to alternative sources of supply, too many businesses have too little wriggle room. Put another way, they are constrained by their own products’ bills of materials.

We last saw this on any scale back in 2011, in the aftermath of the earthquake and ensuing tsunami that hit the north-east of Japan on March 11th that year.

Around the world, from car maker to car maker, huge numbers of automotive components turned out to be sourced from Japan and its intricate supply chains. Worse, many of these were single-sourced—sometimes not just to a single company, but to a single plant within that company. Electronics components, paint, engines, gearboxes… around the world, assembly lines thousands of miles from Japan came to a grinding halt.

In 2011, recovery took months. But production eventually resumed, with automotive manufacturers having learned valuable lessons about supply chain resilience. The effects of Brexit and Trump’s tariffs will be more lasting. Re-shoring, and finding alternative sources of supply on the right side of a customs border is no quick matter.

But the real lessons from all this have little to do with sourcing. To be blunt: by the time in a product’s life-cycle when it comes to finding suppliers, the important sourcing decisions have already been made.

As I explain in my just-published book, Product Design and the Supply Chain: Competing through design, 80% of a product’s eventual supply chain costs are already present at the early stages of product design and development. In other words, design decisions can have significant through‑life implications for risk, complexity, and responsiveness.

Put another way, if you thought that design was just about the appearance and functionality of products, then think again. Design decisions also have an important role in determining the cost, pricing, risk, and profitability profile of those products.

For manufacturers struggling to find alternative sources of supply, that’s probably of little comfort. But how many of them are re-jigging their design processes so as to reduce their dependence on inflexible sourcing arrangements, going forward?

Precious few, is my guess.

 

 

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