Global supply chain excellence is more than just an emerging skill. For most companies, it will be a key determinant of overall company success — even survival. In 2007′s global trade environment, a number of potential issues loom that can disrupt global supply chains, sourcing strategies and the flow of working capital.

An increasing number of companies cite supply chain initiatives and prowess in annual reports and meetings with financial analysts. Global supply chain excellence, it can be argued, is more than just an emerging skill; in fact, for most companies it will be a key determinant of overall company success — even survival.

The full impact of globalization really started to be felt in the supply chain in 2006.

According to Bernie Hart, global product head of JPMorgan Chase Vastera, a number looming issues can disrupt global supply chains, sourcing strategies and the flow of working capital. (Source: Supply & Demand-Chain Executive)

Risks

• 2007 Tariff Code Changes
Approximately every five years, the World Customs Organization updates the Harmonized Tariff System (HTS) nomenclature at the international level to reflect changes in trade patterns and technology. “Accurate HTS code assignment is critical, as it determines the manner in which a product is taxed when shipped across borders,” according to Hart.

The problem is that few international governments have published their country-specific changes, leaving businesses at risk of facing unknown duty increases, possible sanctions and delays in processing transactions as the industry scrambles to comply.

• Security
Security remains a major business concern in trying to keep products running safely and smoothly through the global supply chain while complying with increasing government regulations and restrictions. The challenge of security is “a balance between keeping the borders safe from the minority who would do harm, while encouraging a smooth flow of commerce and travel for the rest of us,” says Hart.

Government initiatives, such as the Container Security Initiative (CSI), and close communication across supply chain parties — including manufacturer, service providers and consignee — are imperative.

• Reverse Logistics from Asia
Businesses are increasingly looking for low-cost country sourcing opportunities within, and beyond, China and India. Hart asks, “How will manufacturers effectively and efficiently manage reverse logistics from this region of the world? As more goods flow out of the region, what procedures, processes and infrastructure are in place to manage repairs, returns and warranties?”

On a country-by-country basis, Hart proposes that successful businesses will excel at managing a complex web of warehousing, distribution, personnel and government compliance issues.

• Global Environmental Regulations
“Manufacturers of electrical and electronic equipment will continue to face additional environmental restrictions as 2007 progresses” — in the U.S., China, Korea and especially the European Union, which, over the past few years, has developed and adopted major e-waste directives that member states will begin implementing this year.

Noncompliance with such directives can result in lost revenue, fines and damage to corporate reputation. How do/will compliance affect your manufacturing operations?

However, the news for 2007 isn’t all bad. A number of promising opportunities exist, as well.

Opportunities

• Proliferation of bilateral and regional free trade agreements
There are currently 10 regional free trade agreements in existence, while nine newly proposed regional agreements are in various stages of agreement. Twenty-seven countries have bilateral agreements in place today, while 80+ additional agreements are in various stages of negotiation.

As free trade agreements proliferate, many companies are leaving millions of dollars worth of duty savings unclaimed. Don’t be one of ‘em, Hart urges.

• On-shoring
Though the global sourcing boom has put Asia and Eastern Europe in the spotlight recently, manufacturers increasingly are looking at on-shoring opportunities closer to home in response to higher-than-anticipated total landed costs, quality issues, longer lead times, port congestion and higher fuel costs. There are also concerns over the potential impact if/when the Chinese RMB (yuan) floats on the open market. As a result, tried-and-true markets such as Canada and Mexico are being revisited.

How has globalization and international trade-related issues affected your supply chain? Let us know.

Resources

Global Supply Chain – 2007 Risks and Rewards
by Bernie Hart
Supply & Demand-Chain Executive, Dec. 22, 2006

Global Supply Chain: 2007 Risks and Rewards
Material Handling Management