It’s been six months now since President Trump took office, so how’s your supply chain doing? Chances are, you probably haven’t even noticed any major changes one way or the other to the flow of goods into and out of your business, but don’t assume that the status quo will stay that way for the foreseeable future. Your supply chain could be in bigger trouble than you think.
While the mainstream media is preoccupied with covering Trump’s so-far futile attempts to repeal ObamaCare, somewhat lost in the national conversation is the very real possibility of the North American Free Trade Association (NAFTA) deal being revised, and the ramifications those revisions could have on corporate supply chains. One of those potential changes to NAFTA could result in new rules-of-origin that will require manufacturers to account for all imported content in their products.
“This could be a heavy task, especially for manufacturers that are constantly designing new parts—which may be tied to a new supply chain—in their end products,” points out Bob McCutcheon, U.S. industrial products leader with global consulting firm PwC. “For example, a component imported from Mexico may contain content originated from China and Japan. How then will that component be catalogued according to rules-of-origin?”
McCutcheon suggests that companies “stress-test” their supply chains through scenario planning and modeling to ensure it can rapidly adapt to and withstand sudden shifts, especially when it comes to trade policy.
It’s not just industrial components that manufacturers need to get better at tracking and tracing—consider the recent incident involving Ben & Jerry’s, one of the most environmentally-conscious companies in the world, and a subsidiary of Unilever, recently ranked #1 on Gartner’s list of the Top 25 Supply Chains. In late July, it was disclosed that Ben & Jerry’s—which has boasted that its ice cream has been made with non-GMO ingredients since 2014—in fact had traces of glyphosate in its products. Glyphosate, by the way, is an herbicide that is used in weed killer products, and needless to say that disclosure by the Organic Consumers Association is not exactly the kind of kid-friendly, socially-responsible image that Ben & Jerry’s cultivates.
Attempting to explain to the New York Times the fine points of how glyphosate ended up in his company’s ice cream, Rob Michalak, Ben & Jerry’s global director of social mission, said, “We need to better understand where the glyphosate they’re finding is coming from. Maybe it’s from something that’s not even in our supply chain, and so we’re missing it.”
With Ben & Jerry’s now facing threatened boycotts about its use of the herbicide, the company is at risk of a very real supply chain disruption, as consumers aren’t likely to accept the standard “the poison in question is in such small quantities that it’s not going to hurt anybody” explanation. Removing all traces of GMO would seem to be the proper response, but how quickly can Ben & Jerry’s—or any other manufacturer—reformulate its products and shift its supply chain to accommodate that kind of makeover? Just ask Samsung how easy that is—or Takata, or Chipotle, or any other brand whose products have been in the news for all the wrong reasons.
Not surprisingly, in a study of the 100 largest publicly-held manufacturing companies, consulting firm BDO discovered that the number one risk for these companies is supply chain disruption, specifically involving suppliers, vendors or distributors. That’s not really much of a surprise, considering that supply chain disruption has been the top risk for manufacturers for several years running. The only surprise, I guess, is that the situation doesn’t seem to be getting any better; in fact, if anything, current geopolitical tensions appear to be exacerbating the situation.
The BDO report notes, for instance, that “major decisions on global trade by the Trump White House could have broad implications for supply chain operations, growth markets and labor.” Spurred on by Trump’s “Made in America” policies, 2017 could well be the year that reshoring takes root and accelerates.
“Globalization, technological disruption and an increasingly populist agenda in the U.S. and Europe have led to more complex business environments that are ever-changing,” says Vicky Gregorcyk, national leader of BDO’s Risk Advisory Services practice. “For manufacturers, success will require a deft touch to evolve their business models and supply chains, and balance seizing opportunity with managing risk.”
It’s going to take more than just a “deft touch,” though, to keep supply chains open for business; it’s going to take a concerted effort by all involved to identify every element of every product that a company manufactures, and either verify its origin, or get it out of there. Your brand’s reputation is at stake.