Leading up to, during, and since the U.S. presidential election, there’s been no shortage of information, misinformation, conjecture and conspiracy theories. Like many, you may have taken a wait-and-see approach before trying to understand which, if any, significant policy changes might affect the way you do business in a global economy. Though you may or may not subscribe to a line of thinking about potential impacts, your trading partners may. We as supply chain practitioners have to be pragmatic and consider the emotional elasticity of different members of our extended value chain.
This tumultuous global political landscape has brought renewed focus on supply chain preparedness as businesses consider the implications of potential regulatory changes. Just as we encouraged our customers to re-evaluate their supply chains in response to Brexit, many global companies are taking a similar approach in response to the results of the recent presidential election here in the U.S.
There is still some time before any substantive changes to trading policies are made. Even so, it’s a good idea to get ready now for the flood of “what-if” questions that are going to come your way from corporate leaders, finance, logistics, manufacturing, and other stakeholders within your business.
Design Trumps Uncertainty: Rumblings of Supply Chain Implications of Policy Changes
While political theatre provided a sometimes irritating distraction from actual policy discussions, there have been some clues to potential implications for supply chain networks and sourcing and manufacturing strategy; including potential regulatory changes with the primary US trading partners.
One of the most important decisions production or manufacturing companies face is where to produce their goods. This challenge is often referred to as the “off-shore vs. near-shore” or “low-cost vs. local” question. In making these fundamental facility location decisions, it’s easy to fall into the trap of focusing only on the production costs or investment costs and forget to focus on the entire end-to-end supply chain, which includes the interdependencies of many cost factors including transportation, inventory and tax. It will be even more critical in the coming years to have the ability to make decisions that are optimized across the entire supply chain, identifying the tradeoffs across all the different cost elements. Potential immigration policy changes may also necessitate labor cost analyses as part of overall off-shore/near-shore decision-making.
The prospect of lower business tax rates as well as trading policy changes could further complicate the already imposing topic of tax and duties optimization. With the increasing globalization of business, variable taxes and duties across trading borders have a huge impact on overall cost, supplier sourcing, manufacturing strategies and distribution network structure. However, the inherently complex nature of tax laws has obstructed many businesses from including taxes and duties in supply chain design practices, resulting in millions of dollars wasted. There are numerous ways to integrate taxes and duties in your supply chain decisions to consider both logistics and tax considerations—and potential changes—in a holistic view for the best overall supply chain decisions.
Use Supply Chain Modeling to Compare and Test Potential Supply Chain Changes
So, how do you begin preparing your supply chain for potential policy and regulatory changes? The good news is that with a living, digital model of your supply chain, backed by your own real-world data, you can evaluate the trade-offs of any potential supply chain changes before implementing them. You can model the typical components of your supply chain: facilities, products, transportation lanes, and customer demand. You can also get more creative in which entities you use to represent your supply chain. Tax and duty structures, labor costs and availability, lead time uncertainty/variability, multiple competing objectives, safety stock (emergency rations?), and transportation routing might all be affected by executive or legislative changes.
With the LLamasoft supply chain design platform, all of this can be analyzed within the same technology. You can visualize the existing structure and policies of the end-to-end supply chain, continuously optimize to identify a better future state and rapidly answer what-if questions to adapt to changing market conditions. Here’s how:
- Visualize: For businesses early on in their supply chain design journey, the first step is to gain full visibility of what is happening in the existing supply chain before looking at potential future scenarios. Even when downstream visibility is good, upstream visibility is often limited to Tier One suppliers, and it’s sourcing that often leads to supply chain vulnerabilities. Instead of trying to make sense of numbers on a screen, LLamasoft brings your supply chain data to life as a digital model in easy-to-understand maps, graphs and dashboards. An end-to-end view of the supply chain enables you identify potential problems and areas of inefficiency or risk.
- Optimize: Identify optimal supply chain designs based on assumptions around demand, costs, lead times and availability. LLamasoft can show not only the cost-optimal supply chain network design, but also the optimal design given variations in your assumptions and business objectives.
- Analyze: If you’re concerned about Brexit and other economic and political uncertainties, evaluating scenarios now will help you make data-backed decisions and react rapidly as the ramifications unfold. Scenario analysis enables you to answer supply chain “what-if” questions by evaluating and comparing dozens of scenarios side-by-side.
- Simulate: Reduce risk by testing your supply chain changes before enacting them. Simulation technology lets you artificially “run the clock” to execute the supply chain in a digital environment that truly factors time and variability into each individual transaction, decision and movement throughout the supply chain at SKU-level. How’s that for confidence?
In an environment where the only thing you can be certain of is uncertainty, the ability to test scenarios to inform supply chain decisions will be vital in the coming years. That makes the importance of analytics in supply chain design and planning absolutely critical, and businesses lacking rapid analytics capability could be left behind. Instead, design your supply chain to survive—and thrive!
We love helping our customers design thriving supply chains. LLamasoft enables organizations around the world to model and optimize their supply chain operations for major improvements in cost, service, sustainability and risk mitigation. We’re driven to make supply chain optimization easier, better and faster, so you can make the world a better place. We continue to innovate with an aggressive development roadmap including new solutions for supply chain visibility, planning, and predictive analytics.