Do You Have a Plan B for Your Supply Chain?

Global trade drew a wild card this year. The US and China may be on a collision course. And any trade dispute could ripple through global manufacturing. Some analysts rate a full-blown trade war as very low. But, the specter of protectionism serves to remind us that you need a plan b for your supply chain.

Manufacturers, retailers, and consumers have all benefited from the current era of open borders and free trade. But, in 2017 we hear a lot of talk about tariffs.

A new tariff could spark a chain reaction, raising the cost of production for many products and closing off markets for particular sectors. Trade tension could impact everything from luxury items to consumer products.

For example, China supplies core components for manufacturing the iPhone. While these only add 4% to the value of the phone, their production costs are lower than other sources. Thus, it would be difficult for Apple to reconfigure manufacturing without raising prices.

And if the walls went up around China, Business of Fashion reports that the luxury sector would lose up to a third of their global market.

Needless to say, then, the potential impact of trade tensions on global trade is serious. These days, 80% of global trade comprises international supply chains. And China accounts for 25% of global manufacturing. If worse comes to worse, a lot of companies will feel it. However, even if a full blown trade war doesn’t break out, it’s important to have a supply chain plan b.

Knowledge is Power in Your Plan B

For most light manufacturers and suppliers, a plan b will simply require knowledge to act on a contingency. And keeping an eye on current events.

This starts with examining your customer base and if your supply chain capability meets demand, both current and anticipated. A close inspection of your supply chain will tell you if you are carrying too much inventory if you need to phase out some items or sell more of others.

This optimization of stock levels will help you understand what may happen to your business if trade tensions suddenly create an added cost to your product.

This is where finding alternative suppliers comes in. You may outsource manufacturing to a factory in China. If a tariff goes up in your home market, increasing the cost of importing from that factory, you’ll either have to raise your prices, cut overhead costs significantly, find an alternate supplier, or a combination of the above.

Your plan b may require you to locate an alternate factory. And it takes time to locate one that can meet your demand, your deadlines, and your cost.

So, while it’s easy to use a system to track actual costs and sales activity, your plan b will require a little more strategic planning.