Global Supply Chains
Supply Chain Shifts: The “Knowns” and the “Unkowns”
LO 3.2 Explain the impact of expected events on global supply chains
Trade is supported by a sophisticated global supply chain industry consisting of airlines, shippers, traders, rail lines, ports, customs brokers, insurers, financial intermediaries and a host of professional service firms. Technology has not only enabled the fast and reliable movement of goods, even perishable goods, around the world but also process management and tracking movement of inventories in real-time. The emergence of cryptocurrencies and block chains promise to dramatically alter and disintermediate international trade. In addition, the overall growth of data around trade flows and technologies such as the Internet of things (IoT) will continue to support the flow of goods and services across borders, while the rate and complexity of data produced will be unprecedented. As in many other areas of business, big-data holds much promise only if the data can be collected, stored, understood, interpreted, and used to impact decisions by management.
EY Ernst & Young – Digital supply chain: it’s all about that data
Some countervailing forces are pushing back against the growth of free trade across open borders. For example, there is a common belief that the reduction in manufacturing employment and trade deficits in the United States are the result of companies moving offshore to take advantage of labor arbitrage. However, we have seen that the growth in free trade across open borders went hand-in-hand with the impact of technology in the later stages of the industrial revolution. A close study of the impact of technology on labor productivity shows that rapidly rising labor productivity was responsible for 85 percent of employment reduction while increased imports over exports explains only 15 percent of the change. (Kehoe, Timothy J.; Ruhl, Kim J. and Steinberg, Joseph B. “Global Imbalances and Structural Change in the United States.” Journal of Political Economy, 2018, 126(21).). While one may be able to show that trade is only marginally responsible for job losses, companies will need to be ready to respond to policy changes that may result from common perceptions.
It is not clear if the political manifestations of this pushback in the form of BREXIT and the US tariffs on imports will be a longer-term trend, businesses will need to anticipate that there will be some change.
Federal Reserve Bank of St. Louis – Trade Adjusts Gradually After Trade Liberalization by Fernando Leibovici and Jonas Crews
Federal Reserve Bank of St. Louis – Understanding the Trade Imbalance and Employment Decline in U.S. Manufacturing by Brian Reinbold and Yi Wen
Regardless of the political support in United States for addressing potential risks associated with climate change, the fact that most companies have at least an indirect global footprint by way of suppliers and customers, forces management to think about the issue. Since all goods moving around the world travel at least part of the time with transportation powered by CO2 emitting propulsion, supply change operators are already looking at ways to mitigate risks associated with CO2 emissions and engaging in a number of approaches to address their climate impact.
In a number of countries, companies also need to consider the reverse supply chain as governments seek solutions for waste reduction and addressing environmental concerns.
No matter how careful the planning and thorough the implementation, supply chains are occasionally disrupted due to unforeseen circumstances. Sometimes disruptions are minor or temporary and at other times may be significant. Disruptions may result in a complete breakdown of the supply chain or at other times goods may continue to flow but with an anticipated additional cost. One example is the $1 billion impact in unexpected tariffs on imported steel the Ford Motor Company incurred in 2018.
Bloomberg Markets and Finance – Ford CEO Says Metals Tariffs Took About $1 Billion From Profits
Tariffs and trade tensions between China and the US also had an unanticipated impact on soybean, agricultural equipment and fertilizer trade.
IBISWorld Analyst Insights – Global US-China Trade War: Exposed Agriculture and Manufacturing Industries by Nick Masters, Lead Industry Research Analyst Dec 10 2019
A number of other potential disruptors of global supply chains include:
• Unexpected price change is due to tariffs or changes of ownership
• Geopolitical instability such as trade conflicts, terrorism or war
• Labor disputes and strikes along the supply chain
• Cyber-attacks or drones threatening aircraft
• Health scares and pandemics.