Retooling the supply chain for the US presidency
13 January 2017
Following the recent US election, Sarah Krasley asks how the supply chain will need to retool for the Trump presidency and speaks to Sourcemap’s CEO, Leo Bonanni, about his views and opinions
Whether you view the coming years with crippling anxiety, cheery optimism or something in between, Trump policies will effect how much Americans pay in taxes, the social programs we use, and even the decisions we make as designers and engineers.
It is far too early to understand what a Trump presidency will really be like, but Republicans have made strong statements about changes to trade policies and programs to bolster American manufacturing being paramount in the first days of the next administration.
From our vantage point as designers and engineers, these policies will have bearing on the manufacturing partners we choose
At time of publication, two of these policies — the Trans-Pacific Partnership (TPP) and the North American Trade Agreement (NAFTA) — are not high on Trump’s list of favourites.
Both of these agreements effect what comes into a signatory’s country as raw materials or components and how those materials and components are sold in other countries with whom we are in agreement.
The TPP also pertains to intellectual property laws and better governance of compliance and stewardship throughout supply chains.
The agreements are very complex, but at a high level, they do things like regulate tariffs and help normalise the cost of goods in the world market.
From our vantage point as designers and engineers, these policies will have bearing on the manufacturing partners we choose, how costs will penetrate our margins and the competitiveness of our products.
Changes to governance and compliance might open us up to risk and maybe even the inability to meet the promises of warranties we provide to customers.
To try and make sense of it, I turned to Dr. Leo Bonanni, Founder and CEO of Source Map, a company that helps manufacturers visualise their supply chains in an effort to understand nodes, preempt risk and implement good sustainability programs.
Sarah Krasley: With the TP) and potentially the NAFTA off the table or amended, what type of components will be hardest to source?
Leo Bonanni: The loss of TPP and NAFTA will make things just as easy or maybe even easier to source but they will make it harder for US manufacturers to export. These are bilateral trade agreements that make US goods look very competitive in other countries, and make raw materials and sub-components easy for US manufacturers to afford. I’m more concerned what tariffs will be imposed on imported goods, which could spark a trade war with China — and that could have potentially disastrous consequences to US manufacturing.
Even a small tariff increase will have a significant impact on the competitiveness of US manufacturing, lead to inflation and hurt consumers, especially those in low-income households.
SK: How are companies bolstering their supply chains to deal with risk and uncertainty with Trump trade policies - particularly with components made/assembled in China and Mexico?
LB: No one is quite sure what will happen but I think companies will start to look at onshoring more aggressively. It’s not just the threat of trade tariffs, which would be a terrible idea, it’s the suggestion that Trump will drop the corporate tax rate.
Considering all of the complexity and risk of managing outsourced production, even a small reduction in corporate tax rate will make US manufacturers consider local production.
SK: How can they use Source Map to gain visibility into where they should focus to mitigate risk?
LB: Companies make trade decisions based on what they know about their supply chain but manufacturers know very little about what happens two or three steps away, in their suppliers’ supply chains. Sourcemap helps companies map out the end-to-end supply network so they can design simpler, less risky sourcing strategies.
Our software works like a social network: it allows companies to connect with their suppliers, who invite their suppliers, their suppliers’ suppliers, and so on until they can trace products to the raw material origins.
Manufacturers using Sourcemap find ways to save money through lowered tax burdens, diminished tariffs, streamlined inventories - and gain peace of mind from being the first to respond when something threatens to disrupt the source of supply.
SK: Any advice for IoT and wearables designers who rely on rare earth minerals?
LB: We already have very few alternatives to China for sourcing electronic components and even fewer choices for rare earth minerals, of which more than 90 per cent come from China.
But the quantities we use are so small, and the mining is so many steps removed from chip fabrication that, barring a trade war, electronics shouldn’t see an important price increase anytime soon.
One piece of good news is that rare earth mines are being re-opened in the US, Canada, Europe and Australia - in part because Chinese dominance of the market makes governments want to invest in ‘rare earth’ independence. So I expect there will be more, and cheaper rare earths in the medium to long term.