Tariff tensions between the U.S. and China remain elevated, the result of a growing standoff involving trade, technology and defense policies. Although all industries are affected, global technology supply chains are at increased risk of fracturing.
“The good news is that global trade tensions have eased slightly within North America. There has also been the postponement of tariffs on automobiles imported from the EU and Japan,” says Kamala Raman, Senior Director Analyst at Gartner. “But with no signs of a resolution between the U.S. and China, multinationals must be ready to bifurcate global supply chains set up for cost and efficiency to mitigate risk as the situation in the global economy worsens.”
The role of supply chain leaders during this period is to become trusted advisors to the rest of the organization and lead with business continuity plans for short-term, midterm and long-term horizons
As the dispute lingers, the risk rises for greater economic fallout for both countries through increased consumer prices and lower profits from absorbing tariff-related costs. An expansion of trade discords may lead to larger and more serious concerns between these two giant trading partners.
Companies should treat this issue as not just an increased risk, but as a potential competitive advantage. “Those that respond proactively create opportunity to take market share or capture a larger share of industry profits,” says Raman.
Use scenario planning to prepare for fluctuating trade policies
Scenario planning, done right, can make businesses resilient to known, as well as unanticipated, risks. Given the volume of global trade flows that involve the U.S. and China, decoupling supply chains on a permanent basis to address short-term challenges is neither realistic nor cost-effective for most firms. However, companies with global supply chains should use scenario planning to evaluate national, organizational and cost challenges as part of any new solution — including much longer and more variable lead times, increases in inventory and possible impacts on service levels.
Approach resiliency as a necessity
Gartner defines business resilience as the ability of an organization to resist, absorb, recover and adapt in a complex and changing environment to deliver its objectives and prosper. The organization must return to an acceptable level of performance in an acceptable period after being affected by a business disruption.
“Supply chain leaders must treat resiliency as a necessity, moving it from a nice-to-have to a must-have,” says Raman. “Like scenario planning, supply chain leaders must have alternate options for suppliers, contract manufacturers and manufacturing locations to provide network flexibility.”
Create digital twins of the supply chain network
Supply chain leaders should create digital models of the supply chain network so restructuring networks can be simulated and tested for impact on total network cost, service levels and inventory in the midterm.
This visibility in the real-world supply chain enhances situational awareness and greatly enhances supply chain decision making. By being a truer representation of the real-world physical supply chain, decisions can be made faster and will be of a higher quality.
Although a trade agreement between the U.S. and China could happen at any time, for the long term, divergence between the western economies and China on trade, defense and technology policies is likely to create flux in global supply chains.
“The role of supply chain leaders during this period is to become trusted advisors to the rest of the organization and lead with business continuity plans for short-term, midterm and long-term horizons,” says Raman.