Category Archives: Global Trade

Is Your Organization Serving the Right Market?

If your Supply Management organization is part of a global multi-national, chances are that it has been buying from China and selling to the U.S. for years. And, for a few of you (in heavy machinery, luxury goods, etc.), chances are that your Supply Management organization is producing Made in the USA goods and selling these to China. But should it be?

Ignoring the fact that rising costs in transportation and production (due to raw materials and the inevitable rise in labor wages) coupled with the decline of the US dollar often make sourcing close to home (in Mexico) or, when possible, at home cheaper than off-shoring, especially when quality and risk-related costs are taken into account, now that Trump has brought back the trade wars, much of those savings are flying out the window faster than a Peregrine Falcon diving for its prey. (If you’re not sure how fast it is, Google It .) So, as we have been posting recently, you really need to rethink your global supply chain (and possibly look to Russia, Turkey, etc.).

And, despite the headlines being made over the move, look to copy Harvey Davidson and shift production of certain goods (closer) to the primary markets they are being sold in. (Bureaucrats can threaten higher taxes all they want, but unless laws are passed through both houses and signed by the President for the tax category they are in, nothing can be done. And as long as the move doesn’t change the structure of the company, the only result will be a lot of hot air and wasted words and a temporary drop in stock price. In other words, don’t move all your production out of a market, especially if you are selling in that market, or even the majority, without checking with your accountant and lawyer first.)

Because, if you buy and sell in a market, there are no import or export tariffs, and the way the trade wars are going, this is a big savings and an opportunity to claim more market share if you can sell an equally desired, equal (or better) quality product for a lower price due to a smarter supply chain design that keeps your costs down. For example, I don’t think anyone in Europe would mind if Harley said it was staffing its European Facility with German and Austrian trained Engineers but keeping the authentic American designs. In fact, the bikes might even become more desirable as German and Austrian Engineers are often seen to be the best in the world.)

And if you’re selling overseas, especially to China, producing overseas, or in China, makes sense. We don’t often think about it, but, due to population and wealth (around 15% of GDP now), China is the world’s largest consumer of automobiles, motorcycles, mobile phones, luxury goods, and shoes and at least the world’s second largest consumer of home appliances, consumer electronics, jewelry, and the internet (based on data that is a few years old, but all trends were rising). Thus, if you are in any of these industries, why not produce in China for China?

Remember the facts. China, which is the world’s second largest economy, is approaching 1.3 Billion people and an emerging middle class flocking to urban areas. A recent McKinsey & Company study had over two thirds of the Chinese population as middle class and predicted three quarters would be by 2022. And about 56% of the population has internet access, with most of these individuals having broadband access in their densely populated urban centers. In fact, China is estimated to have close to 100 cities with a middle-class population of 250K or more. The US and Canada combined have less than 70 such cities.

And India is growing. It’s GDP is now almost half that of China’s. And while it’s middle class population isn’t nearly as large yet (as it has almost as many people as China), at about 21%, or 270 Million people, that’s still at least 50% more middle class than in the United States!

And South Korea’s GDP has more than doubled since the turn of the millennia. In fact, an article from 2015 predicted they’ll have a better standard of living than the French by 2020, with an adjusted GDP per capita (PPP-adjusted) heading towards 50K. Right now, the average annual household income is 48K, which is only 20% less than the median household income in the US! At presents, two thirds of their households are middle class, the average household has one child and dual income, and both earners University educated. Talk about consumer marketer’s paradise!

In fact, when you look at all of this, maybe you should just relocate your company to Asia, make the US a subsidiary, streamline operations to produce just what you need for NA in NA, and focus on Asian growth. Seems to make more sense, doesn’t it?

Trade is Getting Complicated. Trade Agreements More So. Are Your Contracts Up to Snuff?

It’s difficult enough to create contracts that specify what both parties want, but with the shifting global landscape, crumbling trade agreements, new ones rising to take their place, and new regulations cropping up all the time that companies need to adhere to just to do business in their home country, it’s almost impossible.

How do you define contracts that keep up? And, more importantly, how do you figure out which of your contracts are not up to par, and where they are falling short?

In the first case, you constantly monitor government sites, associations, and news sites for mention of new regulations and requirements to adhere to them. Then you process the news, make sense of the new requirements, and find some experts to help you understand the best way to contractually deal with the new rules.

In the second case, you need to be able to quickly analyze a contract and determine if there are clauses to address the regulations. But if it’s a 50 page contract, that’s not a quick effort. And if you have 1,000 of them? 10,000 of them? How can you even attempt to do that?

Manually, you can’t. You need tech that can identify which contracts are likely lacking one or more clauses to address one or more regulations and bring them to your attention, in order of priority. Advanced, semantic, technology that can understand documents, deficiencies, and suggest potential fixes.

And a few companies understand that, and that’s why you see the likes of companies like LawGeex and LegalSifter rising up to challenge Seal with a new take on contract analytics and the need for. Because, one way or another, once you reach a certain point on your sourcing journey, you’re going to need this technology.

Will Trump’s America First Policies Put America Last?

Trump wants to bring production back to America, and that’s a noble effort and, for many companies, a smarter thing to do than they realize as escalating logistics costs and global uncertainty make near-shoring and, even better, home-shoring much less risky (and, in the long run, often more cost effective) than off-shoring, especially when there’s no good reason to off-shore.

But Trump’s recent almost across-the-board tariffs are going to cost some American manufacturers anywhere between millions of dollars to hundreds of millions of dollars as, simply put, due to a lack of availability of certain resources, Americans have to import. The net effect of so many lower-cost global options over the years is that American companies went off-shore for just about everything they figured they could get cheaper, and as a result not only has there been little to no growth in raw-material extraction and production at home, but some industries have actually lost capacity. And that capacity can’t be turned on and ramped up over night.

As a result, Americans need to import aluminum, steel, and other metals, at least for the short term. And while most of that importation should come from near-source locations (like Canada and Mexico, especially if the US wants to maintain NAFTA, which, for the most part, is better for it than Canada and Mexico [combined]) to decrease risk and increase border security (after all, it has two borders — Canada and Mexico; working with Canada and Mexico on security issues makes the entire North American continent safer), Americans have such high demand in some categories even Canada and Mexico can’t meet it all.

For now, American manufacturers have no choice to but import their raw materials from other (non-exempted) countries. It’s unfortunate, but it’s the reality. And if any of these companies have access to good global strategic sourcing optimization and supply chain planning tools, they’re going to start modelling and realize that it’s cheaper in the mid-term, and maybe even the short term, to manufacturer whatever is intended for the global market outside the US. Rev that factory back up in Mexico and serve the world from there. Only manufacture at home what is needed at home.

And what happens if companies shift their operations to other jurisdictions? America loses jobs, tax revenue, and it’s share of the global GDP. That’s, hopefully, not what Trump, or anyone inside North America, wants.

And while there should be tariffs on goods imported from jurisdictions a country can’t compete with and, in particular, a country that allows its corporations to pay it’s employees $2 a day for a job an American would have to be paid at least $58 a day for (as there’s no way America could compete with imports otherwise), those tariffs should be designed not to hurt the manufacturers who depend on raw materials they can’t get at home, or at least be used to fund local raw material extractors / producers to give those companies at home a local option. For instance, all tariffs collected should go into a fund to help local raw material extractors and producers expand or increase production, and until that happens, companies that need to rely on imports in the interim should at least get tax credits until such a time as they have a local option. Or they are just going to find ways to take as much of their business as they can elsewhere.

And that won’t make America great again, or even competitive. While I actually agree with the premise that, especially when it comes to manufacturing and agriculture and staple industries, America needs to be great again, unfortunately, just slapping import tariffs without a broader plan to achieve that goal is not only not going to help, but it’s going to hurt.

Fujitsu is Launching a Blockchain Money Transfer Service

Which is a step in the right direction, but it’s not enough.

As per a recent article, Fujitsu Eyes Cryptocurrency Trading with Cross-Blockchain Payments Tech. The goal of the platform is to allow two different cryptocurrency networks to interoperate.

Interoperable networks are the future of supply chain, as per a recent article on we need blockchain, but not for the reasons you think, as, implemented properly, it could allow supply chain partners on different platforms to securely, but openly, trade information that multiple partners need access to in an unalterable way.

But that, of course, is easier said than done. Company X might post that it has a 10 Million Renminbi receivable in China that it wants to trade for a 1.5 Million USD receivable in the USA, but even if that is the exact exchange rate, are the two debts equal? Only if both parties can, and will, pay the same amount at the same time. If one debt is due now and one is due in 30 days, there is a cost of capital if one organization has to borrow in the interim to meet cashflow requirements. Also, if both debts are due in 30 days, something could happen within 30 days that would result in one organization being unable to pay its debt for 60 days, and this again could result in a cashflow issue for one party that traded a debt.

As a result, unless both parties pay into a network and the funds can be immediately transferred, then you need a network where parties are trading at negotiated discount rates (subject to credit ratings or other agreed upon factors), and that could get tricky.

We could be left with a situation where each IOU is auctioned off to the highest bidder in one of the counter-party currencies of choice (1.4M USD, 1.0M British Pounds, etc) or the situation where each block is put up with a (set of) offer requirement(s) and the first offer takes it. In the first situation, which requires a fixed time auction over block chain, you have a lot of overhead (and blockchain’s primary application — bitcoin — already takes too much energy), and the second case this could leave trade possibilities on the table.

Unless a truly global currency facilitation fund where a number of entities establish a global bank, each funding in their own currency, and agree to pay out debts in the local currency in an established timeline for each IOU placed on the network, the dream could stay that, a dream. But with a global organization, the global organization would do its own risk checks, insure the risk is acceptable, and then take a cut just like supplier networks and payment networks take a cut. It would be like a bank or an invoice factoring network, but could offer lower costs as it wouldn’t need to exchange currency all the time, could weather currency storms, minimize global transfer (and global transfer costs), and generally improve global trade efficiencies. Just like the Knight’s Templar did when they effectively established one of the first global banks.

What we’re asking is not an easy network to design, but one we need to be thinking about.

Supply Chains Are Complex … and the Earth is Round.

Hey, some of you might not know the earth is round! It’s only been 70 years since the first pictures of earth were taken from an altitude greater than 100 miles in space (and, up until that time, the non-believers could demand visual proof)! (To be precise, the first pictures of Earth as seen from an altitude above 100 miles was on March 7, 1947. Source: NASA)

But to not know that supply chains are complex, when “global” trade is almost as old as civilization (as purchasing is, of course, the world’s second oldest profession until such time as someone can definitely prove astronomy came first), that’s, well, really unthinkable. But yet, APICS and Michigan State University just gave us yet another report that announced yet again that supply chain leaders are citing “complexity” as the top supply chain challenge. Moreover, they decided to dive into the sources of complexity and found, surprise, surprise that they are:

  • customer accommodation
  • operations globalization
  • supplier (local sourcing) complexity
  • supply chain trends

But there’s nothing new here either. Let’s take ’em one by one.

The number of variations of a product desired is equal to the number of customers you ask. Period. Has always been. Has always will be — so the more customers you try to accommodate, the more complex your product variations, and supporting supply chain, becomes. And we’ve known this since long before Marshall M. Kirkman wrote the first Purchasing Manual.

Of course the supply chain becomes more complex as you go more global. Every locale has the potential to add languages, currencies, culture, local regulatory requirements, logistics challenges, border challenges, and so on and so on.

And then there are all the local issues faces by the suppliers — additional regulatory requirements, sustainability and CSR efforts to stay off of boycott lists, local workforce challenges, local disruption and disaster risks, and so on.

And of course trends affect complexity. They are usually the source … but they are not new issue. As we laid bare in our “future trend expose”, of the 33 trends commonly cited as future trends, only 3 were really relatively new, and only 1 was really a future trend.

Complexity has always been here, and the more global we get, the more complex we get. Nothing has changed, and if it’s not completely obvious at this point, you’re in the wrong profession.

That’s why SI has been preaching optimization and analytics since day one, since those are the only advanced sourcing solutions that can really handle the complexity of modern supply chains.