September 21, 2018
While testifying at the United States Trade Representative Section 301 Committee hearings regarding proposed tariffs on Chinese imports, NAFEM was asked by a committee member how long it would take to reconfigure a global supply chain, should the proposed tariffs be implemented. Recognizing that many members may be facing this situation considering current and proposed tariffs on both Chinese imports and steel/aluminum, NAFEM spoke about global supply chains with former board member and industry supply chain consultant David Wasserman, CFSP, president, SGP Inc., Milwaukee.
Advocacy Update: Why do so many businesses now have global supply chains?
David: There is a lot of misunderstanding in the U.S. about why companies operate globally. This is not a new trend. As a country, we’ve been looking for ways to produce our goods at a lower cost since the late-1800s. Look at the textile industry as an example. First, they relocated from the northeast to the south, then to Mexico. When the cost of producing textiles in Mexico got too expensive, they relocated to Central America and eventually to Asia. We’re constantly pushing for lower-cost goods – at the same high-quality. Manufacturing in China is simply the next extension of this trend.
Advocacy Update: How much time would it take to establish, or re-establish, a global supply chain?
David: As many NAFEM members already know, setting up a global supply chain is no easy process, and re-establishing one in the light of recent tariffs isn’t any easier. After deciding whether you are looking for a commodity or custom supply chain product, you have to locate sources and then evaluate their capabilities, capacity and quality control processes. This takes significant time on the ground. Factors like lead time will determine how much buffer inventory you need to get started. Building up this inventory can take months. Then, if tooling is involved, you need at least six more months to crate, ship, unpack, set-up and test equipment before production ever begins.
Advocacy Update: How practical is it to consider a short-term relocation of all or part of a supply chain based on the recently enacted U.S. import tariffs?
David: The government is asking us to subsidize a global trade fight, a lot of which has no impact on our business and ultimately trickles down to the consumer. In the long run, there is no way the consumer will accept a 25 percent price increase from the businesses using our industry’s products. This means, in my opinion, that these tariffs will be reversed – or at least revised – like tariffs before them. Unfortunately, this means our margins will suffer in the short term. It’s inconceivable that companies will be able to reconfigure their supply chains, and reap the financial benefits of doing so, before the tariffs are rescinded or change significantly.
Advocacy Update: Should companies begin considering alternatives to their current supply chains?
David: Only if they have a long-term, strategic business reasons for these changes beyond the current tariff situation. It’s also important to realize that Chinese companies won’t be able to sustain the impact of the tariffs long-term either. They’ll soon look to ship production to other low-cost countries to avoid the tariffs. Now’s a good time to begin discussing these potential changes with your suppliers.
Advocacy Update: Following are some additional resources that may be of interest to members considering how to best manage their supply chain.
• Building the supply chain of the future, McKinsey & Company management consultants
• Five essential stages in developing a successful supply chain, Trade Ready blog
• Using supply chains to grow your business, Harvard Business Review