Chain of Thought

Too Many Losing Sleep over their Supply Chains

If there were a company listed on the New York Stock Exchange called “Your Supply Chain,” your broker would probably urge you to stay away from it. Too risky. And many corporate executives across the country agree—their supply chains are risky. According to a survey by McKinsey & Co. of more than 600 C-level executives across a range of industries worldwide, more than two thirds of respondents said that supply-chain risk had increased over the last three years, and they expected it to continue increasing over the next five years—especially in the following areas:

• Global competition

• Complex patterns of customer demand

• Financial volatility

• Global markets for labor and talent

• Exposure to differing regulatory requirements

• Environmental concerns

A quarter of the respondents to the McKinsey study said they aren't prepared for more pressure from global competition and more complex customer demand patterns. And 37 percent are unprepared for the other four areas. More recently, Dr. Jeff Karrenbauer, president of INSIGHT, a supply chain analytics and consulting service firm, commented on the effects of rising tensions between the U.S. and Iran.

“Open conflict in the Strait of Hormuz would be a nightmare for supply chains throughout the world, raising the cost of raw materials, manufacturing, transportation, warehousing, inventory…essentially every component of a supply chain,” he said. “We still find that the majority of companies have spent little or no time planning for such contingencies. That is astounding, troubling and frankly, a significant management failure.”

So it's in that light I wanted to share a little more from my conversation from last week with Jim Malvaso, retiring president and CEO of Toyota Material Handling North America. We talked about a meeting President Obama had with a group of executives who want to bring jobs back to the U.S. The President promised them he would include a tax break in next year's budget if they would bring the jobs they've been outsourcing to other countries back to the U.S. That would make U.S. supply chains more secure, wouldn't it?

“I've brought jobs back to the U.S. and never asked for anything nor do I expect anything,” Malvaso told me. “It's the right thing to do for the country. There's a lot more to it than Obama taking other people's money and throwing it at companies to bring jobs back here. We have tax policies where we have the second highest corporate tax rate in the world. Individual tax rates are out of sight. Look at the restrictions we have on expansions. Look what they did with Boeing. It was creating thousands of jobs in South Carolina and he made it tremendously difficult.”

He's referring to the government's efforts to keep Boeing from locating a new production facility in South Carolina. Many point to the influence of the National Labor Relations Board for that action. But where unions are concerned, those same critics cite them as the reason companies have outsourced labor to other countries in the first place. And where China is concerned, it is connected to several of the supply chain risks listed in the McKinsey study. Malvaso says The U.S. and its corporate citizens need to take responsibility for securing its supply chains from such threats.

“We need a total environment change and that means not just spending our way out of poor policies and poor decisions,” he said. “The World Trade Organization needs to get involved and if China wants to have a world market they need to value their currency properly."

And industry must value its products properly, as well. Referring to the U.S. industrial truck market in particular, Malvaso said it's in a position to set a good example for the value of its products and services.

“We bring value to the entire supply chain throughout the world,” he said. “Nothing moves without us. It pains me to see how little value [the industrial truck industry] puts on our own products and services. I hope we come to our senses regardless of how competitive it is and keep the value in this industry up where it belongs. [Where Toyota is concerned] I'm confident Brett Wood and the management team I'm leaving behind will do a great job for our company and I'll sleep well at night.”

I hope you'll be able to say the same thing about your successors and your sleep, dear readers.

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