What Protectionism Means for the Global Supply Chain

As protectionism continues to be a challenge for the world’s supply chain leaders, they must be prepared for future challenges in 2019 and beyond.

Over the last several years, the global economy has been experiencing disruption at an unprecedented pace. For multinational manufacturers, this has often meant that decision-making has evolved to be more rapid in the midst of an uncertain future. The trade war between the U.S. and China, as well as the ongoing Brexit negotiations, are examples of economic disruptions that manufacturing leaders should be aware of when developing supply chain strategies.

Though economic nationalism is not a new phenomenon, 46 percent of senior supply chain decision makers and logistics professionals cite it as one of the biggest challenges they currently face. This is according to recent research from LLamasoft The End of Globalization? Global Manufacturing Supply Chains Succumbing to Economic Nationalism. As protectionism continues to be a challenge for the world’s supply chain leaders, they must be prepared for future challenges in 2019 and beyond.

Current Challenges Manufacturers Face

Though economic nationalism is a primary concern that leaders are presently facing, taxes and duties (50 percent), natural disasters (44 percent) and environmental policies and initiatives (43 percent) are other significant threats impacting global supply chains. The impact of these challenges is felt worldwide and has forced organizations to remodel their supply chains in response to emerging situations while developing strategies for potential scenarios that might take place as a result of these threats. For example, economic nationalism is a stronger threat in the U.K. than in other parts of Europe (64 percent, compared to 43 percent in Germany and 35 percent in France). This heightened focus could be attributed to Brexit and the instability U.K. businesses face. In the face of growing economic nationalism, 66 percent of respondents indicated that they are willing to change their supply chain to tackle related issues, but only half are likely to change their supply chain in anticipation of economic nationalism.

Protectionism is perceived as a threat to supply chains in all global regions, with the majority of organizations in the report stating that they are likely to adapt their supply chains to tackle this disruption. However, almost half will wait until they begin to feel an impact before they change their strategies. By that time, though, it could be too late for many companies. Waiting until an impact is felt can result in lost revenue and time, both of which can have a negative impact on a company’s performance and ability to compete on a global scale. Manufacturers need to begin planning for the unknown now so that they are better prepared for unforeseen scenarios.

Barriers to Consider When Combating Nationalism

Before leaders create tactics to strengthen the supply chain against economic disruption, they must first take into account the barriers that they must break down. A lack of globalized data (35 percent), lack of ability to test changes before implementing them (34 percent), lack of supply chain data and analytics (34 percent), lack of scenario planning capabilities (33 percent) and a lack of supply chain visibility (30 percent) are the top five barriers to protecting supply chains. These barriers prevent leaders from clearly seeing what steps are needed to create robust supply chains. Though respondents acknowledge the pending impact of protectionism on supply chains, more needs to be done to identify the right tools and solutions and implement them before any impact is felt. To help break down these barriers, companies are investing in a wide range of technologies that will reshape the way their supply chains operate.

The top technologies respondents are investing in to manage the challenges facing their supply chains include the Internet of Things (44 percent), machine learning (36 percent) and artificial intelligence and robots (33 percent). Of these technologies, the Internet of Things (IoT) is perceived as the most impactful in safeguarding supply chains against economic disruption and protectionism. China reported the highest rate of IoT investment, with 75 percent of manufacturers already investing in the technology. As these technologies mature, we expect that these solutions will impact how supply chain strategies are developed and implemented in the years to come.

Using Supply Chain Design Software to Combat Economic Protectionism

To manage the impact of economic disruption and protectionism on supply chains, executives are turning to supply chain design software. Supply chain design software enables companies to create contingency plans based on thousands of “what if” scenarios. As a result, companies can better plan for potential scenarios to ensure that, even in the face of protectionism, taxes, duties and tariffs, their supply chains won’t be severely impacted.

Eighty-two percent of respondents currently use supply chain design software, most notably in Latin America where 95 percent of supply chain leaders report that they have adopted supply chain design software. The most popular functionalities of these software solutions include production capacity planning (91 percent), inventory optimization (89 percent) and sales and operations planning (88 percent).

As economic tensions continue to grow, those making key decisions and managing global supply chains must weigh their options for how to best protect their companies from global disruptions. By understanding the challenges, technologies and tools available, leaders can create strategies that help create resilient supply chains that can overcome unforeseen scenarios.

Don Brenchley is director of industry strategy at LLamasoft.

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