Immersed in challenging, yet familiar waters
It’s no secret there isn’t a way to forecast that equates relief for U.S. companies dependent on international supply of materials, partial finished goods and commodities. Standard trade came to a halt at the beginning of COVID-19 and continues through geo-political unrest and pandemic issues. Challenges continue during inflation, shortages, shipping costs and supply unavailability especially from Asia and Western Europe. Once considered an advantage, international supply is now leaving organizations vulnerable to higher cost and less availability.
For instance, freight transportation costs continue at peak, enabling ocean transportation to rise to premium prices. As consumer spending and international trade increased, congestion at ports led to prolonged lead times. According to Forbes, “shipment delays between China and major United States and European ports have quadrupled since March 2022.” These issues have left U.S. manufacturers frustrated and at risk for potential setbacks, directly impacting their businesses.
Unfortunately, these issues will persist. Many Fortune 100 companies will cope given their infrastructure and market leverage. Mid-tier and those trading globally with U.S. domestic revenues under $4B annually will continue shouldering heavier weight. With consumer spending, the industrial production index (IPI), and the price of crude oil all expected to increase along with growing tensions with global politics, premium costs and prolonged lead times are not expected to relent in the foreseeable future.
Get ahead of the issues
There exists a race, beyond market competition, to solidify best positions among the supplier base. Fresh off the pandemic with trade and climate disruptions, it is crucial to remain agile in your procurement and supply chain operations. Those optimizing their supplier base, strategically managing key partners and effectively exploring alternative suppliers (on/near shore) will win. Remaining operationally international should not cease, however conditions exist for enhanced onshore or near-shore strategies. Entrepreneurial and legacy production within North America continues to react to the current market; capacities and capabilities exist and will grow. Items of interest regarding an evaluation of U.S. and neighboring countries’ opportunities:
- Economy: The United States-Mexico-Canada Agreement (USCMA) aids in the duty-free treatment of goods manufactured in Mexico and Canada. Moving production to the U.S. or to Canada or Mexico is geographically more desirable from a tariff and duty perspective. In addition, the increasing wages in South Asian and Eastern European countries are closing the gap between manufacturing costs internationally and in the United States.
- Logistics: Bringing production closer to the U.S. is beneficial, cutting out the bottleneck: truckload, less-than-truckload, and rail costs in the U.S., Canada, and Mexico cost are significantly lower vs. ocean freight. Lead times are shorter, more reliable and companies can move away from ocean transportation.
- Quality and Sustainability: Availability of real time governance controls complimented by confidence in essential standards; and products made in North America adhere to EPA standards as well as labor laws and anti-slavery policies.
- Sovereignty: A company can gain better independence in strategic activities, mitigating exposure to geopolitics risks.
- Reactivity: Port congestion is an ocean transport issue, leading to product sitting on docks. By moving to land transportation, a company receives product sooner, decreasing stock on hand, and acting quickly to customer needs. Onshoring and/or near-shoring can also aid in best inventory practices, whether that be just-in-time or a determined amount of safety stock.
- Branding: Moving manufacturing to the U.S. qualifies items to have the “Made in the USA” label per the Buy America Act.
Take the meaningful steps
The problems are difficult, but solvable. While no single movement presents a holistic solution to the current challenges, opportunities always reside. Enable your key talent by:
- Evaluate an alternative supplier base for prioritized needs
- Assess and define your realistic change tolerance
- Manage existing suppliers beyond historic expectations
- Diverge your “long” and “short” global supply needs (enhanced forecast/planning)
- Collaborate with Finance, Sales and Operations to align on supplier base strategies
- Cease “pausing” and take intelligent actions
Argon & Co specializes in transforming business operations. Our excellence resides in Procurement, Supply Chain, Logistics and SG&A functions. With 17 areas of expertise across North America, South America, Europe, UK, Middle East, Asia and Australia/New Zealand, we produce strong, global insights and intelligence along with local, tailored execution. We are dedicated to real results and work alongside clients’ talent to achieve uncommon outcomes.
Authors: Thad Taylor and Sarah Trojanowski
Share:
Thad Taylor
