As Congress wrangles over the Trans-Pacific Partnership, a trade deal under negotiation by the U.S., Japan and 10 other nations, it’s time for supply chain executives to consider the implication this agreement could have on their supply chains.
Industries will potentially shift to pursue lower raw material, labor costs, and tariffs made available through the agreement, and you may suddenly find yourself shipping materials from and to new countries or dealing with very different demands on infrastructure you currently rely on.
So what can you do today?
Have internal conversations with procurement about whether they’d consider sourcing from Vietnam or in one of the other developing countries participating in the agreement. If changes are anticipated, do your homework now to see how you can manage the changes to your global logistics network to continue to hit expectations in a cost effective and timely manner. Every port has fixed infrastructure and capacity that is not likely to change quickly so begin looking at the service available in the countries under consideration.
|Start by looking at the historical risk picture country by |
country and port by port.
With so many different risk factors to consider, start by looking at the historical risk picture country. Each is so very different and must be evaluated separately. What’s the labor/union landscape like? How long does it take for shipments to travel from supplier plants to the ports and from those ports to the U.S.?
Connect with your freight forwarders now to find out whether they plan on ramping up capacity in those countries, if they have a local presence (an office or agent) there and whether they can start providing their strategy, schedules, and rates. If they are currently operating in the region, will they change equipment or procedures to handle increased demand? Take a tour of their offices and have your forwarder schedule you for a tour of the local infrastructure. Consider “boots on the ground” your best source of intelligence with an ability to look for yourself and ask your own questions.
If you are already reliant on any of these countries, you need to be prepared for a sudden on-rush of demand that challenges the capacity you’re comfortable with. Even if you’re not changing, the market is going to change if this agreement is passed.
|Ask your team “what would happen if …” in tabletop exercises.|
Prepare by having similar conversations with your existing freight forwarders to ensure they are prepared to meet your needs as demand increases. Also, run through scenarios in table top exercises where you ask your team “what would happen if …” For example, what would happen if a strike shut down one of the major ports you rely on? What if it starts taking an extra 3 weeks to get shipments due to increased demand on a country’s supply chain infrastructure? Focus on how you would handle a problem like that, and what you can do now to minimize your exposure to risk.
By preparing today and having proactive conversations, you can be prepared to minimize variability in the plan that leads to unexpected, increased costs. Work like this is also valuable as it moves you from a reactive posture to a proactive one, allowing you to focusing on strategic issues and challenges before they become a problem.
Have you started considering the implications of TPP? What challenges are you facing or anticipating? Let me know in the comments below, or feel free to contact me.