The Supply Chain Matters blog continues a series of blogs that provide added detail and perspective for each of our ten 2020 Predictions for Industry and Global Supply Chains which we unveiled on December 17.
In our previously published Part One posting in this predictions series, we explored for our readers 2020 Prediction One, what industry and global supply chain teams should anticipate in terms of global and regional economic outlooks.
In this Part Two blog, we explore the detail of 2020 Prediction Two which highlights what we expect to occur in global supply management challenges and trends.
Background and Introduction
On an annual basis, and since our inception in 2008, The Ferrari Consulting and Research Group and our associated Supply Chain Matters blog publishes a series of supply chain management focused annual predictions which are both described, monitored and scored for actual occurrence at the conclusion of the year.
Such predictions are provided to clients, technology providers and blog readers in the spirit of advising senior and line-of-business executives, multi-industry cross-functional supply chain management and supporting information technology teams a sensing of what to expect in the coming year, Our goal is to depict how likely global, regional, economic, business and industry trends will impact and likely influence required supply chain management actions in the coming year.
The context of these predictions include a broad cross-functional umbrella of what is today considered supply chain management, and includes areas of leadership and strategy, product management, strategic sourcing and procurement, supply chain planning and customer fulfillment, manufacturing, logistics, transportation and customer service management.
2020 Prediction Two: Continued unparalleled levels of global supply network management challenges, especially centered on components and products produced in China, will continue to lead to ongoing structural sourcing shifts during 2020-2021.
In both 2018 and again in 2019, we predicted a challenging year for managing direct material costs and global-based supply networks. Our 2019 prediction was that with the likely threat of a far more escalated trade war involving the United States and China, industry supply chain teams would encounter unprecedented levels of added global supply network challenges as import tariff levels expanded. We predicted that Chief Supply Chain Officers along with strategic sourcing, supply management and strategists will be compelled to position C-level, line-of-business and product teams for alternative sourcing strategies options.
The term ‘unprecedented’ turned out to be the appropriate descriptor given the level and scope of tariff actions involving both countries.
U.S. And China Trade War
As the year 2019 winded down, it became clearer that despite Wall Street and general media headlines, the U.S. and China trade war and other global trade tensions were not at all subsiding, and neither are the implications.
We anticipate the beyond the announcement and approval of a termed ‘Phase One’ U.S. and China agreement sometime in early 2020, currency, trade and other economic and intellectual property protection related tensions among these two global powers will extend into 2020 and likely into 2021 as-well. Supply management along with sales and operations management (S&OP) teams will need to continue to be diligent to such an environment with a number of appropriate migration strategies in constant focus.
Among certain industries, the shifting of component or finished goods sourcing has already begun in order to overcome the uncertainties of heightened tensions and prolonged tariffs. Regions such as India, Malaysia, Vietnam and others have already benefited but at the same time, are not fully prepared to be able to match China’s deep manufacturing, supply network capacities and in-country logistics capabilities. Among certain industries supporting proprietary or advanced technology laden components, we anticipate more alternative sourcing decisions favoring a regional or near-shored supply network strategy, affording mitigation for increased geo-political uncertainties or trade disputes.
A new twist in trade tensions that developed in 2019 was the declaration of certain technologies as either strategic or subject to national security considerations. The most visible examples was the ban placed on Chinese high-tech manufacturer Huawei Technologies U.S. based supplier network related to specific components, and we anticipate that among other key strategic components such as semiconductor devices, battery and alternative energy technologies, domestic supply networks will be considered as tenets of national security. This trend will invariably lead to more domestic sourcing of such strategic components, especially those related to semiconductor, battery technology and alternative energy focused key components.
South Korea and Japan
While on the topic of high-tech supply networks, the escalated trade dispute and tensions specifically involving South Korea and Japan extended through 2019 with no clear signs of easement. We believe this will extend into 2020 and precipitate additional supply sourcing changes for certain high tech and consumer electronics supply chains.
The Eurozone and Brexit
Other continuing areas of global challenge involve the United Kingdom’s eventual exit from the European Union or Brexit, which encountered legislative and political gridlock throughout 2019 resulting in multiple planned implementation postponements. With results of the December 2019 snap national election solidly favoring the ruling Conservative party, signs are clearer that Brexit will most likely occur in early 2020, and the open question is to what extent.
There are real possibilities of cross-border disruptions and interruptions in just-in-time material flows involving the back and forth movement of goods among the UK and the European continent. Depending on severity and the ultimate consequences, we predict some alternative supply sourcing shifts to begin to occur in the second half of 2020. We do not envision a smooth Brexit transition, quite the opposite.
Regarding trade relationships among the U.S. and the broader Eurozone region, we anticipate added trade tensions and tariff actions as the Trump Administration shifts its focus to that region, particularly the automotive and aerospace sectors.
With U.S. based Boeing deeply ensnared in one of its most significant corporate business crisis with the ongoing global grounding of the 737 MAX aircraft, the expansion of tariff tensions is a real possibility as a means to blunt arch competitor Airbus’s current market momentum. Commercial aerospace interests often make leverage of nationalist geo-political environments.
Small and medium manufacturers, retailers and businesses were especially impacted by increased tariff costs in 2019. With leaner budgets and supply needs, these organizations lacked the tools, resources, time and leverage necessary to analyze rapidly changing pricing of inbound supply or to analyze various alternative sourcing scenarios. Looking toward 2020, such businesses will need to step-up their analytical and assessment capabilities. In that light, we predict an uptick in participation in SMB buyer consortiums or buying groups.
Finally, we anticipate tense supplier negotiations and an uptick in supplier lawsuits as a result of the squeezing of suppliers to adsorb added tariff costs.
We once again encourage clients and readers to take the time to review what to anticipate in the coming year and how your organization can be best prepared.
As we continue our highlighting of each of our predictions in added detail, please continue to provide your individual feedback along with what specific area that most concerns you in the coming year.
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