If I learned anything from 2020, it’s that I don’t know what is in store for the future. In the last few years, we went from talking about how the Trans-Pacific Partnership (TPP) would transform trade, to Brexit, to the trade war, to the global pandemic.
Global trade has been under a constant barrage of new challenges, most of them unanticipated. So, while I would love to look into my crystal ball for 2021, I have learned that it is a fool’s errand to make forward-looking statements. Instead, I would like to make the statement that 2021 should be the year of supply chain resiliency.
We have all been hearing the term “supply chain resiliency” a great deal over the last year (or years perhaps, my sense of time is a little fuzzy in quarantine).
Let us define what supply chain resiliency is… it is the ability of your supply chain to be prepared for disruption, and to be able to react to those unexpected events in an agile manner to continue business.
The last year or two have been full of “disruptions.” That might be the mildest term many of us can come up with to describe 2020.
I have also heard it described as; “the dog's breakfast,” “a dumpster fire, ” “the zombie apocalypse,” “that time I tried to home school my kids,” and “a brief period when the world lost its mind and we ran out of toilet paper concurrently.”
However, before the pandemic, supply chain resiliency was already gaining popularity as companies navigated the repercussions of manmade hurdles like Brexit, the US-China Trade War, and export controls & sanctions in tandem with natural phenomenons like wildfires, cyclones, hurricanes, and floods. Many companies were taking an active look at their sourcing and looking at ways to hedge risk.
Some of the complications around sourcing and supply chain:
Sourcing can be a complex endeavor and is more than just finding a low price. Relationships need to be built, products need to be evaluated, logistics flows need to be mapped, and regulatory hurdles need to be understood and overcome. It requires a strategy with sound, underlying tactics that need to be reviewed and revisited as circumstances change.
What needs to be deliberated?
In the current environment, understanding the geopolitical landscape to determine if a sourcing country is viable is a good place to start.
What is the ease of doing business there, the transparency index, the special trade programs?
What duties and taxes may be in play and how does that factor into the overall cost of production, including the difference in transportation?
Is your sourcing something that is easily moved, or does it require a significant capital investment?
There are a host of questions and many of them vary greatly by industry, but understanding them allows you to narrow down your candidates.
As we tend to focus on trade regulations here at Tradewin, my propensity is to focus on those.
With supply chain complexity, comes complexity in regulation. As the flows from country to country change, companies will need to review their HS classifications to update their databases to be compliant.
With different origins for different parts, come changes in the way we utilize Free Trade Agreements. This, of course, could be for the better or the worse, but the key is to do the due diligence to ensure you are compliant, particularly around Brexit.
Make sure you understand the duty mitigation programs in place within your supply chain. There are a plethora of programs in the world from duty drawback, inward processing relief (IPR), to manufacturing incentives and tariff exclusions.
Make sure you understand these before making big changes.
Ensure your trading programs like AEO and C-TPAT stay concurrent with these changes. Have quality providers that can help with the transition, and of course, ensure you are auditing along the way.
Here at Tradewin, we feel blessed to have been so busy during the pandemic, even as we had to learn to work differently as a team and overnight, move to a work from home environment.
As a global community, I think we all learned just how resilient we can be. We learned to be more flexible, more understanding, and more empathetic. We learned what our dogs do all day while we are gone (very little).
With hope on the horizon, I wish everyone a happy New Year, full of new beginnings, perhaps a few challenges, and health.