Digitize Your Supply Chains Before Tariffs Impact Your Margins
In March I wrote a blog entitled, Stormy Seas Ahead Resulting from Trump’s Tariffs? which identified three likely results: 1) a decline in United States economic activity, 2) increased working capital costs, and 3) changes in international trade patterns and adjustments in distribution networks. In July I provided an update, Trump’s Tariffs are Starting to Rock Global Trade Patterns!
Some recent headlines are aligned with those blogs and point to a potential impending decline in United States economic activity:
The Dallas Business Journal News reported on October 9, 2018 that “Texas manufacturing executives speak out for and against Trump’s tariffs”. In this article 9% of executives stated the tariffs will help business and 47% said they will hurt business in the short term. Looking to 2019 to 2020 the picture get rosier as the numbers change to 15% and 39% respectively.
On a positive front, the Detroit Free Press reported on September 18th that “Buying a car before December 31st will save you money”, but then in the new year things get frosty… “New tariffs imposed by President Donald Trump on auto parts from China will hit carmaker profits, cut sales and threaten to “start a downward cycle” in the critical industry, analysts said unanimously Tuesday.” “It’s hard to read a silver lining into this,” said Kristin Dziczek, vice president of the Industry, Labor & Economics Group at the Center for Automotive Research in Ann Arbor. “Tariffs are taxes on American consumers. We’re going to sell fewer.”
Forbes reported on October 11, 2018 that “Trump Tariffs Tank Marts”. While acknowledging that impact of Federal Reserve rate hikes on the market, Cohan argues this was already priced in as the Fed has been consistently announcing their plan for rate hikes. The recent market drops are caused by companies lowering earnings and revenue guidance.
With over two decades of experience automating global supply chains through multiple economic cycles, Elemica has identified several ways in which a digital supply network can help corporate board members and executives adapt to the erection of trade barriers:
- Digital supply networks reduce the cost and business disruption risk inherent in acquisitions and divestitures resulting from new trade patterns and partners.
- Automated factories will need to be inter-connected to their extended supply chains.
- Market share can increase due to 24×7 order capture and service differentiation.
- Working capital costs can be optimized in real-time through trade-specific algorithms.
- Margins can be protected since business is more efficient and error-proofed.
- End-to-end visibility of demand, transport, and supply can let you tune operations based on business conditions.
Of course, in the end, the escalating trade war with China may prove to be an example of the President’s negotiating style. Still, leaders should take this as a wake-up call. Data is the new oil that lubricates the economy. Digital transformation creates the corporate engine for growth and provides a better competitive position. Board members need to ask their executives and division heads about their automation levels with customers, haulers, and suppliers. Benchmark your digital penetration rates against your industry, and adjacent ones. A highly digitized company is better positioned to take market share during both the economic contractions that tariffs may bring and economic expansions. All the other companies that have manual supply chains may have a hard time beating the competition.