To stave off possible and increasingly risky disruptions on a global scale, many manufacturers are now taking a closer look at their supply chain strategies.

For one, Asian automakers are reevaluating their supply chains in the United States out of concern for possible disruption through bankruptcies. This follows a sharp drop in automobile sales and the financial problems in Detroit.

Suppliers are already deeply stressed these days, following years of factory closures and restructuring at the Detroit Three. And the outlook for most businesses is only expected to worsen without a change to the business-as-usual approach to the supply chain.

Bernie Hart, global product executive of logistics management with financial services firm J.P. Morgan's Global Trade Services group, recently discussed what he considers to be the top nine trends that will characterize global supply chains in 2009. In last month's J.P. Morgan Global Trade Services newsletter, Hart writes that the many challenges manufacturers will face this year will bring with them a number of promising opportunities, too.

Five of the top nine trends, according to Hart, follow.

1) Supply Chain Risk Mitigation in an Economic Downturn — "Supply chain risk mitigation will receive increased focus [this year] versus past downturns," writes Hart. This attention will be due to many factors: supplier financial risk; volatility in energy, commodity, labor rates and currency exchange; and unpredictable economic recoveries.

2) Searching for Working Capital — "This trend will bring increased scrutiny to the supply chain as companies look to reduce inventory and lower operating or carrying costs," Hart writes. "In addition, buyers will look to extend payment terms, while suppliers will drive to collect receivables more quickly, creating the need for a liquidity buffer (such as supply chain financing) to mitigate this brewing payables/receivables conflict. The current credit environment is pushing buyer/supplier partnerships to look to their trade flows to drive the creation of additional liquidity."

3) A Resurgence in Letters of Credit — Hart says his firm has seen a "resurgence in the use of letters of credit to facilitate the financing of international trade. As fewer banks have been extending and guaranteeing credit during the recent downturn, the supply has been declining and the cost has been rising, in some cases dramatically. "For the right borrower and the right transaction there are still deals to be done, but the market will remain tight for the near future," Hart notes.

4) Shortening the Supply — Due to "limited free trade agreements, high energy costs and rising labor and production costs in Asia ," J.P. Morgan also continues to see U.S. manufacturers reevaluating and reconfiguring their extended supply chains. Some companies are reverse-offshoring, or onshoring and nearshoring; that is, they are moving plant operations and sourcing vendors closer to home and away from Asia. "While opportunities still exist in Asia, Mexico has become an increasingly popular source for manufactured goods," Hart writes, citing a U.S. Department of Commerce report that indicates a 7.2 percent increase from year-to-date imports through Mexico compared to the year before.

5) Improved Speed and Savings in Mexico — Mexico has been piloting a new customs regime, known as Regimen de Recinto Fiscalizado Estratégico (RFE), that is meant to attract more foreign investment by improving importers' supply chain speed and mitigating the delays frequently associated with time-intensive processes and procedures at the port of entry. Mexico's government believes RFE "will decrease logistics costs in terms of dollars per container and numbers of days in transit, which, in turn, will attract additional production to Mexico," Hart writes. Mexico Customs estimates that the new clearance process will save an importer between US$200 and US$600 per shipment. The program is expected to open for additional manufacturers early this year.

In addition to these five challenges and opportunities, Hart also proposes that there may well be more free-trade agreements (FTAs) in 2009. The U.S. is expected to finalize three new FTAs this year, with Columbia, Panama and South Korea, the complexity associated to which is beyond the scope of many companies' expertise and resources.

Moreover, the logistics executive expects increased scrutiny on supply chain oversight and import and product safety. China, for one, will likely "clamp down on oversight" in response to the deadly toy and milk product recalls that "triggered unexpected supply chain costs and negative public attention for multinational manufacturers."

Second, an amendment to the 108-year old Lacey Act will require detailed reporting of any plant matter incorporated into an imported product brought into the U.S. The law — which broadly covers plants used in processing, no matter how small the amount and no matter how far removed from the harvesting of the plant — could have significant consequences for U.S. importers who will be subject to new data reporting requirements.

Finally, Hart goes on to point out that representatives from China, the European Union and the U.S. met in November for the first high-level trilateral summit on product safety to discuss key developments and further joint activities to improve cooperation and the exchange of information relating to consumer product safety.

For Hart's complete, comprehensive list of supply chain risks and rewards, see Top Nine Challenges for '09.

What do you see as the biggest supply chain challenges in 2009 and onward?

Resources

Global Supply Chain Risks and Rewards: Top Nine Challenges for '09
by Bernie Hart
J.P. Morgan Global Trade Services newsletter, December 2008

Toyota May Modify Just-in-Time to Ease Supplier Shock
by Makiko Kitamura and Alan Ohnsman
Bloomberg News, Dec. 30, 2008

Asia Automakers Seeking Alternatives to Weak U.S. Supply Chain
AFP, Jan. 13, 2009