Having just taken the bold (or some might say foolish) step of walking away from a secure job and guaranteed salary in an increasingly uncertain world, to start something new with little more than a vision (no, I’m not talking about Donald Trump), I’ve naturally found my behaviour regarding spending significantly altered. Despite not previously considering myself extravagant, it still took an external “shock” to really focus my mind on my finances and accelerate positive change in my attitude.
Looking at some of the recent global “shocks” such as Brexit and Trump (undeniably disruptive regardless of your personal viewpoint) I can’t help but see some parallels for businesses and supply chains in particular.
For some time now, the industry has been transforming, driven by technologically empowered consumers and a host of agile technology- and data-driven relative newcomers. The pace of change has been unprecedented and it’s left businesses scrambling to offer new services and meet new demands through “old” supply chains. Given the investments made in existing assets, not to mention legacy systems and entrenched culture and capabilities, real change has been slow, if steady.
That’s meant, for example, many retailers offering an online service at little if any profit while they grapple with costs, complexity and getting economies of scale in a fragmented and multichannel market. The question is, will steady progress be good enough, given the need to run just to stand still in this changing market, or will we reach a tipping point for transformation?
With Donald Trump’s presidency (and throughout his campaign) there has been a lot of talk about trade agreements but, perhaps unsurprisingly although misguidedly, very little mentioned explicitly about the supply chain. Misguidedly, because a World Economic Forum study from 2013 found that improving supply chains could increase global GDP by up to six times more than simply removing all trade tariffs. And yet for all the recent shouting about the European single market or the Trans-Pacific Partnership, the supply chain has been a mere whisper. But Donald Trump’s policies, should they be followed through, will have a profound impact, one way or the other, on supply chains and as a consequence, on all of our lives.
In many areas, the growing challenges that we have seen, will only increase. But, that doesn’t have to negative. It’s often through adversity that the case for change becomes compelling and opportunity, invention and transformation are catalysed. I’ve outlined three outcomes below which I think the supply chain will be forced to embrace and which will leave them in a better place for the future:
1. Responsive and resilient
Fake or not, my perception has been that the words “President Trump” and “unpredictable” seem to go together fairly frequently. In fact, a Google search shows that is not the case but the search results do show that the word “unpredictable” is attached to President Trump 40% more than to President Obama, as a proportion of their total results, so there may be a grain of truth there!
My own view is that he’s not that unpredictable. Unconventional? Yes. But he largely seems to be trying, at least, to follow through on his campaign pledges, like them or loath them. The point is, his unconventional nature means we are less certain about the wider impacts of and responses to his decisions, including how the financial markets or consumers will react. He is also symptomatic of a less predictable world, evidenced by his own election victory (and that of the Brexit campaign) at odds with the prevailing polls.
While we need to continue to invest in forecasting (and an increasingly connected world opens up a host of new data and subsequent opportunities to enhance our visibility), at least as much focus needs to be invested in improving our ability to respond whatever the circumstances. That doesn’t simplistically mean just holding more stock, which itself can reduce responsiveness by locking up working capital and taking away capacity for unexpected changes.
Rather it means, for example, improving visibility of stock in the end-to-end network and working collaboratively to share information, enabling an earlier, coordinated response from the whole supply chain. Sharing physical assets, such as vehicles and warehouses, can also help to spread risk between partners and give more options for efficient and sustainable ways to meet evolving demands. In other words, it’s about removing barriers in the supply chain.
2. Close to customers
Of course, being closer to customers means understanding them better, but it can also mean a more local supply chain. Donald Trump has been a very vocal critic of companies moving jobs out of the United States to south of the border, resulting in some prominent about-faces achieved through a combination of carrot and stick. He has also repeatedly attacked China on trade threatening to kick start a global trade war.
While the balance between offshoring and reshoring has fluctuated over the years, if Donald Trump does follow through with his protectionist policies it could have a significant impact, far beyond the questionable ones on jobs and the economy directly, on supply chains. One possible implication is the move to a more local supply chain; this doesn’t necessarily mean a better or worse one but what it does make easier is visibility and hence control.
A lack of visibility in ever more complex and distant supply chains can lead to a direct impact on consumers as happened with the so-called “Horsegate” scandal when horsemeat was discovered in a number of beef products in European supermarkets in 2013. This helped accelerate an erosion of trust in the retailers with increasing concern amongst shoppers about the provenance of products. Even more insidious impacts can result from poor visibility and control including exploitation of workers or modern slavery. The horrific Rana Plaza collapse in Bangladesh, also in 2013 was, we hope, the lowest of low points.
Another benefit of moving manufacturing closer to consumption is similar to that which is gained from late differentiation or customisation. Even if raw materials still need to be shipped in from distant lands, manufacturing of the final product can be much closer in time, as well as distance, to the customer therefore improving the accuracy of the forecasts used in the production run to boost availability and minimise inventory.
3. Automated and adaptable
Amongst the most controversial of President Trump’s viewpoints have been those on immigration with his widely denounced initial travel ban overturned by the courts. While that ban was heavily opposed by tech companies, amongst many, because it reduces the talent pool from which they can recruit, it’s President Trump’s crackdown on illegal immigrants which could have the more profound impact on supply chains.
Illegal immigrants form very significant portions of the workforce in a number of sectors, including some which are crucial to the supply chain, such as farming, where over a quarter of workers are undocumented, or production, where it’s almost 10%. Reducing this workforce at the same time as bringing jobs back to the US creates a challenge.
One implication is likely to be an increased focus on automation. With increasing numbers of supply chain jobs already at risk of automation this adds impetus to an ongoing trend. It’s never a good thing to see anyone lose their jobs but the answer isn’t to block inevitable progress. It’s to recognise the trends early, allowing you to find the best way to manage the situation proactively over time rather than have your hand eventually forced. Another key consideration must be how to introduce automation that is adaptable and is able to meet needs in a unclear tomorrow as well as today. You don’t want to invest heavily in automation that is out of date if the market trends continue to change rapidly. Better standardisation and modularisation can help.
And so to Mr President…
When, in 2015, the Latina actress America Ferraro (of “Ugly Betty” fame) thanked Donald Trump for his controversial comments about Latino immigrants because they “ignited a fire” in the community, there may have been a hint of sarcasm in her gratitude but her point was provocative, powerful and, perhaps, prescient. I wonder whether, in the future, we will be able to look back and similarly “thank” Donald Trump because he inadvertently ignited a much needed fire in supply chains.