Supply Chain – infraglobalpartners

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"The ‘New Normal"

Supply chain upheavals show little sign of abating. Companies can address them by retooling outdated, short-term strategies and begin the hard work of building structural resilience. The COVID-19 pandemic created significant disruptions to global supply chains, business had not experienced anything like this since WWII. Today’s C Suites have never been faced with the uncertainty and are attempting to develop strategies that will address the everchanging challenges. The Russian invasion of Ukraine is creating one of the greatest humanitarian crisis in Europe since WWII, resulting in consequences that will unfold for years to come. Restoring a system that has been focused on cost optimization will be increasingly more difficult. It will be necessary for supply chain operators to consider a range of options, including structural reform. Predictability is over. Another single prolonged shock to production could result in a hit of 30-50% of one year’s earnings.

Robotic production

COVID-19 showed the vulnerabilities of transportation; clogged ports, expensive cargo capacity and emergency shipments.

Just when everyone thought normalization was on the horizon, the conflict in Ukraine contributed to product-line closures, transportation delays and spiraling input costs.

These issues have contributed to large increases in commodity prices and a troublesome spike in inflation. The consumer is prepared to expect higher prices around the globe.

Due to shortages of containers, equipment, and labor, it is unlikely that ports, shipping, rails, and trucking issues will be quickly resolved.

Long-term effects will result in slower-moving and permanent effects on supply chains beneath the surface. Supply chain leaders must face these challenges and short-term shocks while installing a deeper structural reform.

Structural reform is the only way leaders can restore the resilience their companies will depend on from their supply chains. Given the past 3 years, it is evident that production and the supply chain must move closer to the point of consumption.

It is imperative for companies to have greater control over production operations, logistics, and flow of inventory to capture sales allowing companies with owned, domestic production capabilities and gain market share.

ASSESS EXPOSURE

tug boat moving container ship

No one saw the conflict in Russia coming and companies had no option but to exit their operations in Russia. This self-imposed sanctioning had several effects, including greater unpredictability, especially since future geopolitical disruptions are more difficult to anticipate.

Rising inflation presents stress and unavailability of critical supply chain inputs from single source regions. These shortfalls can shut down production and revenues.

Effects of COVID-19 continue to ripple through supply chains and their full impacts may not be felt for months. Companies began to over purchase to provide a false sense of resliancey. As those stocks deplete, other disruptions may occur.

There are other challenging, significant and long-lasting problems developing below the surface for supply chain.

Continued economic uncertainties and risks associated with maintaining overseas production:

•TRANSPORTATION RISKS -Skyrocketing costs and uncertainty around how long importing will take with shortage of containers and delays at ports

forklift loading a 53 foot box truck

•TARIFF RISKS -Potential
for tariffs on Asian exports to continue rising. US tariffs on Chinese exports jumped sixfold between 2018 and 2020

•GEOPOLITICAL RISKS -Potential
for political unrest and the unpredictability of the CCP, Russia and other regions around the world

•COVID-19 RELATED RISKS-Sporadically halting operations due to COVID-19 outbreaks

•CURRENCY RISKS -Foreign
exchange risks as world currencies fluctuate in response to evolving economic policies

•INFLATION RISKS -Fears
of recession and continued inflation

•COST OF MONEY -Interest
rates are expected to continue to rise, so long supply chains just simply cost more.

Arial picture of trucks at a distribution center

‘Green New Normal’

Government policies around the world are focusing on CO2-On March 21, 2022, in a landmark proposal, the Securities and Exchange Commission proposed rules that would require public companies to disclose extensive climate-related information in their SEC filings. Specifically, the proposed rules would add new Subpart 1500 to Regulation S-K and new Article 1 to Regulation S-X to require disclosure of: climate-related risks that are reasonably likely to have a material impact on a public company’s business, results of operations, or financial condition; greenhouse gas (“GHG”) emissions associated with a public company that includes, in many cases, an attestation report by a GHG emissions attestation provider; and climate-related financial metrics to be included in a company’s audited financial statements.

Furthermore, Europe’s continued focus on sustainability will only continue to lead suppliers to shift their inventory management strategies in the coming years. https://www.europarl.europa.eu/RegData/etudes/STUD/2015/569964/IPOL_STU(2015)569964_EN.pdfThe transportation sector will contribute for almost 40% of the global manmade CO2 emissions by 2050. Establishing reduction targets for shorten supply chain logistics may result in reduced carbon tax obligations of the future.

Steps Towards Resilience

Short-term solutions only work when supply chains are predictable. Preparing for long-term potential uncertainty and upheaval will require building resilience into supply chains.

Short-term options are to either expedite delivery to meet demands, speed up production, or purchase components on an emergency basis.

People working in a R&D Lab

This can solve previously overlooked supply chain gaps. However, they don’t build resilience and are not fundamentally new. CEOs should consider implementing cross border production locations that feed supply chain in supply chain blocks ensuring an agile ability to respond to fast-moving events. Moving higher value jobs North of the border and lower value jobs south of the border.Building supplier clusters regionally (in proximity to the market) is a long-term solution. The result of planning to mitigate longer-term, more permanent damage from supply chain disruptions will result in long term customer satisfaction.Establish a “centralized cluster” to manage from sub supply through finished goods, planning for disruptions, and reevaluating just-in-time strategies.

Maintain a centralized center to track and consolidate raw material and production flow between contractors located in proximity to each other, while developing a cross-functional team that manages a centralized and localized supply chain.

This team would manage and proactively respond to situations that arise.

The center could be organized under four categories:

1.People
2.Material flow
3.Operating
4.Logistics.

Today supply chain must also be focused on potential geopolitical developments, cyberthreats, and local compliance and regulatory issues.

People working in factory

A “centralized cluster” would reduce the need to build in extra time for delivery; accounting for the higher cost of energy, materials, and transportation; and checking inventories of critical materials to reprioritize production should shortages occur. This would reduce the risk of logistic disruptions.

Centralization will provide transparency.-When an event with the magnitude of the pandemic occurs, the absence of shorter supply chains creates shortages of inventory and materials, threatening supply chains.

Construction of rockets

Many of today’s supply shortages (ex: semiconductors) occur in supplier sub tiers where manufacturers have little visibility.

To achieve transparency beyond the first tier, a centralized cluster of production will drive businesses to assess their vulnerability.

To mitigate risk, a focus on redesigning networks, resetting inventory targets, keeping safety stocks, and sourcing locally or regionally is necessary.

A “centralized cluster” would reduce the need to build in extra time for delivery; accounting for the higher cost of energy, materials, and transportation; and checking inventories of critical materials to reprioritize production should shortages occur. This would reduce the risk of logistic disruptions.Centralization will providetransparency.-When an event with the magnitude of the pandemic occurs, the absence of shorter supply chains creates shortages of inventory and materials, threatening supply chains.

Worker in Factory

Many of today’s supply shortages (ex: semiconductors) occur in supplier sub tiers where manufacturers have little visibility.

To achieve transparency beyond the first tier, a centralized cluster of production will drive
businesses to assess their vulnerability.

To mitigate risk, a focus on redesigning networks, resetting inventory targets,
keeping safety stocks, and sourcing locally or regionally is necessary.

Rusted chain link

people working in factory

C-Suites recognize that there is no solution without investment and costs. Those that
have the vision of long-term resilience and the will to invest what is required, will win.

After the experience over the last 3 years, we need to build the supply chain of the future. Consumers have proven they will pay a premium to ensure the availability of products.

Centralized Shared Services will take out duplicated costs across multiple suppliers by offering shared back-office resources including
human resources, accounting, industrial safety, customs, logistics and compliance, ultimately reducing production costs.

Building cluster production centers with higher value jobs north of the border and lower cost jobs south of the border creates a competitive advantage closest to the point of consumption.

C-Suites recognize that there is no solution without investment and costs. Those thathave the vision of long-term resilience and the will to invest what is required, will win. After the experience over the last 3 years, we need to build the supply chain of the future. Consumers have proven they will pay a premium to ensure the availability of products. Centralized Shared Services will take out duplicated costs across multiple suppliers by offering shared back-office resources includinghuman resources, accounting, industrial safety, customs, logistics and compliance, ultimately reducing production costs. Building cluster production centers with higher value jobs north of the border and lower cost jobs south of the border creates a competitive advantage closest to the point of consumption. IGP offers one of the best geographic locations, extremely close in proximity to the US market, offering a duty free, tax free and IVA free entity which will remove unnecessary government taxes in your supply chain.Cluster manufacturing which is interdependent upon each other will reduce unnecessary logistics and transfer costs resulting in higher margins. Once established, suppliers may reduce costs to help ensure demand for their products.Contractors will reduce costs through a centralized, more productive operation.