Nothing is certain except death, taxes and supply chain disruptions. Companies should plan accordingly, especially as the administration changes hands.
Supply chain planning is almost certain to be affected by the policies of the incoming Donald Trump administration; the question is to what degree and how.
Based on the first Trump administration and the rhetoric from his campaign, Trump will likely institute or continue tariffs on goods manufactured in other countries. The tariffs will most likely be aimed at China, but could include close allies such as Canada, Mexico and European countries. How new tariffs might affect U.S. manufacturers is uncertain to a point, but supply chain organizations should prepare for potential changes, according to industry watchers.
They are likely already doing so, given the state of constant disruptions for supply chains in the past few years, according to Abe Eshkenazi, CEO of the Association for Supply Chain Management.
Indeed, many organizations have already been considering or making changes in supply chain models to include nearshoring and reshoring, or a China Plus One strategy, which diversifies a supplier base to countries other than China, he said. This is primarily due to the COVID-19 pandemic disruption that centered first on China's manufacturing sectors.
"This is not a change in terms of how organizations are perceiving China, and specifically China because of the rhetoric around the tariffs that are going to be imposed," Eshkenazi said. "There's a wide range of possible outcomes, and many are waiting to see what's the actual [policy] versus what the rhetoric was leading up to the election."
Along with COVID-19, other environmental and geopolitical disruptions have both forced and enabled organizations to develop supply chain resiliency plans, he said.
"The days of single sourcing from one supplier from China are in the past," Eshkenazi said. "Depending on the commodity or product, organizations should have already planned for a contingency, as well as accelerated away from single source into a more diversified supply base."
While looking back on tariffs imposed by the previous Trump administration provides an idea of what potentially lies ahead, nothing is certain, and tariffs should be viewed as another possible disruption, according to Mike Dominy, an analyst at Gartner.
"What's a little tricky and hard to sort out right now is, in the first Trump administration, NAFTA was restructured [to the United States-Mexico-Canada Agreement], and now there's talk about realigning or changing that from a trade and tariff perspective, which could put some wrinkles into the realignment of the supply chain," Dominy said.
Tariff workarounds
Manufacturers might also look for ways to avoid tariffs implemented on goods from China, Dominy said. For example, goods produced in China could be moved to another location before being shipped to the U.S. so that they can be labeled from there.
"Often where last transformation occurs is [the source that] you see [on] the label," he said. "But the tariffs, whether they're placed on finished goods or on the raw materials, are generally passed on to the consumer, or organizations will take a profit hit. It's not going to hurt the governments of these particular regions."
These kinds of workarounds are likely to become more common, said Simon Ellis, practice director at IDC.
Manufacturers often claim that the design of a product or the final assembly location are key elements in determining where a product is produced, regardless of where the raw materials are sourced or where most of the product is manufactured, Ellis said.
"Clearly, there's a discussion in the automotive industry about this -- how much of that is really made here and how much is just assembly," he said.
Manufacturers will likely have as much of a product's intellectual property kept locally as possible, Ellis explained.
"You might see a manufacturer saying that they engineered that car here in the U.S., and that's the real value creation, so now they can pay less on the tariffs," he said.
"We talk about it a lot, and a few things happen that somehow validate the broader trend, but there's never really a broader trend [for reshoring]," he said. "A supply chain leader I talked to said they may move final assembly closer to demand, but it's still a global supply chain. The electronic components are still coming from China, Taiwan; the metals are still coming from the parts of the world where they're in the ground."
The imposition of more stringent tariffs and a reduction in business taxation could create more streamlined supply chains and potentially keep manufacturing jobs in the U.S., according to Ashutosh Dekhne, practice leader at EY Global Consulting Services.
"This may incent a lot of companies to just say that it doesn't make sense to go outside, it's better off producing here," Dekhne said. "This could potentially make supply chains easier, because if everything happens in a constrained geographic area, it's easier to manage those supply chains than when it's more overseas."
Regulation pullback
Another area where the Trump administration will affect supply chain planning is its stance on regulations and climate change policies, according to analysts.
"If you go by where the manifesto is for the upcoming administration for the next four years, and if you believe that those things are going to be true, then we'll see a lot more deregulation and less of the environmental policies being enforced," Dekhne said.
Trump is on the record as being an opponent of the Biden administration's climate change policies, Ellis noted. Any climate change momentum for a growing regulatory environment is now potentially pushed back by four years.
Trump may think he's a manufacturing guy, but he's not -- he's a real estate mogul.
Simon EllisPractice director, IDC
"Trump has a friendly Senate and House now, so he's going to push a lot of these things through without much resistance," Ellis said. "Maybe there's been too much gridlock in Washington for too long where nothing gets done, but from a manufacturing and supply chain perspective, I worry because Trump may think he's a manufacturing guy, but he's not -- he's a real estate mogul."
Dominy also expects a pullback from climate change policies that will affect certain industries and supply chains.
"Clearly, there was a lot of investment coming in the Biden administration for clean energy, so if you're getting funding from the federal government for programs around that, I would anticipate there being an impact," he said. "There's potentially an impact on the demand side because there might not be the same incentives available for buying an EV [electric vehicle]."
It's also uncertain if the Trump administration will support the bipartisan CHIPS Act passed under the Biden administration, but there's reason to believe that this will remain largely untouched, Dominy said. There's a strong national security point around being able to make semiconductor chips in the U.S.
"There's a vested interest in continuing things along those lines on the chip side because of the regional threat with China and Taiwan, as Taiwan Semiconductor is a huge manufacturer of chips, so there's a huge risk," he said. "But there's some uncertainty around what's happening with the high-tech supply chain, specifically around chips."
Plan for volatility
Whatever specific policies the new administration implements, things will be different, and complexity and volatility will increase, said Knut Alicke, a partner at McKinsey & Company.
Increasing volatility is never good for a supply chain, and supply chain planners need to prepare for this, he said.
"You need to add a buffer, you need to plan more often, you need to have a backup for suppliers or logistics systems or whatever," Alicke said. "Volatility also results in higher complexity because you might need to change from one supplier to two or three suppliers, or if you had 10 plans, now you have 15 plans."
Organizations will also need advanced supply chain planning tools to help deal with that complexity, he said. Most companies use Microsoft Excel as the main planning tool, which fails to scale and can be brittle.
Dominy agreed, adding that organizations should have a healthy supply chain management and scenario planning practice in place so that they can manage whatever disruption comes next.
"Certainly, over the past several months, they should have modeling scenario planning from the supply chain perspective," Dominy said. "But they also need to think about other implications, not just what they might see out of the Trump administration, and be in a place where they can activate plans to respond to whatever happens."
Jim O'Donnell is a senior news writer for TechTarget Editorial who covers ERP and other enterprise applications.
