PREPARING YOUR SUPPLY CHAIN FOR THE COMING WAR WITH CHINA, PART THREE RETHINKING YOUR SUPPLY CHAIN STRATEGY
Anthony G. Tarantino, PhD
Industry 4.0, Supply Chain, and Continuous Improvement SME and Consultant
?CONTINUOUS IMPROVEMENT WITH TONY
NEWSLETTER, VOLUME 19, November 17, 2024
Anthony Tarantino, PhD
Many companies are now reevaluating their supply chain strategies due to growing geopolitical tensions, trade barriers, and the need for resilience. The coming of a second Trump administration will accelerate a? fundamental rethinking of sourcing from China with many companies moving quickly to exit the People’s Republic. For decades China not only offered inexpensive goods but provided reliable delivery and quality. Their manufacturing expertise benefited from decades of intellectual property theft and reverse engineering. Starting as early as January, tariffs as high as ?60% have been promised along with other restrictions. If any conflict occurs, there may be a total embargo of Chinese goods.
Some companies are diversifying their sources, moving towards regional networks, and investing in local manufacturing capabilities.[1] Here are some strategies worth considering:
Diversification of Suppliers: Many companies are adopting a multi-sourcing strategy, which involves sourcing materials from multiple suppliers across different regions to reduce dependency on any single source. The historic problem for all commodity managers is the constant pressure to reduce pricing from year to year. Adding alternative suppliers typically comes with a price premium. Commodity managers will need to balance price with risk management to be successful with growing tensions and conflicts not only in China but the Middle East and Eastern Europe.
Regionalization: There's a trend towards regionalizing supply chains, where companies are moving production closer to their consumer markets to reduce lead times and mitigate risks associated with long-distance supply chains. This may be an oversimplification though. For example, Japan, Australia, and South Korea are all very reliable trading partners and allies with the United States and all are over 5,000 miles from the West Coast.
Digital Transformation: Companies are leveraging digital technologies like AI, IoT, and blockchain to enhance supply chain visibility, improve demand forecasting, and streamline operations. This is the theme of my 2022 Wiley textbook, Smart Manufacturing, The Lean Six Sigma Way, in which we demonstrate how continuous improvement efforts will be super charged with a digital twin of physical operations. ?
Inventory Management: To buffer against disruptions, companies are increasing their inventory levels and adopting just-in-case inventory strategies instead of just-in-time. Taiichi Ohno, the founder of the Toyota Production System and the Lean philosophy well understood the need for inventory buffers, but pushed the buffer stocks back to his suppliers, the majority of which were located close to Toyotas’ assembly plants.
These strategies are helping companies become more resilient and agile in the face of global uncertainties. Does any of this resonate with what your organization is working on?
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Prediction
China will continue to promote its state-owned enterprises run by government bureaucrats at the expense of public corporations run by some to the best entrepreneurs on the planet. The market reforms of Deng Xiaoping are vanishing and reverting to the same model that doomed the Soviet Union.?
Cheers, Tony?
Anthony Tarantino, PhD
Six Sigma Master Black Belt, CPM (ISM), CPIM (APICS)
Adjunct Professor, Santa Clara University – Smart Mfg. & Industry 4.0
Author of Wiley's Smart Manufacturing, the Lean Six Sigma Way Amazon Links
Senior Advisor to IM Republic, https://imrepublic.com
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