Inside Supply Management Magazine
Navigating the New World Order in Trade
The trade war between the U.S. and China is dominating business and economic news, but supply management professionals mustn’t get too focused on Washington and Beijing. That’s because developing and implementing a supply chain strategy and operating model requires (1) knowing which countries will generate labor and purchasing power in the coming decades and (2) having the digital dexterity to take competitive advantage.
Tom Enright, vice president in supply chain research for the retail industry at Gartner, the Stamford, Connecticut-based global research and advisory firm, said that while the U.S.-China tariff tit-for-tat will likely be a “long, slow and painful process,” it’s just one of several international economic and demographics trends that will impact procurement and logistics. “The world is changing (regarding) where wealth is distributed, where wealth is orientated, where people live, and where workers will come from,” he said. “And it's also going to change the whole definition of (supply management) organizations and their networks going forward. Companies will need to work more closely together to take advantage of these big shifts.”
In his session, “How Global Shifts in International Trade Will Require New Supply Chain Operating Models,” at the Gartner Supply Chain Executive Conference 2019 two weeks ago in Phoenix, Enright said the issue goes far beyond trade agreements and tariffs. The U.S.-China conflict is the immediate concern, however, with many surveys indicating that China is among the top three sourcing countries for almost all U.S. companies, especially those in the apparel and electronics industries.
Enright said an immediate impact is the emergence of Vietnam as a sourcing destination. “Vietnam is very much deliberately strategically targeting the disruption in China and setting itself up as an alternative,” he said. “A French investment bank did a survey of seven countries in (the Asia-Pacific) region, looking at labor costs, education levels (and the like). Vietnam was, by some considerable distance, the most well-equipped country to take some of the sourcing away from China. So, we're going to see a battle between China and other countries in that area, not just between China and the U.S.”
However, what Enright called his “aha” piece of information is that the world is, as he put it, “running out of workers,” meaning that, since 2012, the global population not working has grown at a faster rate than the number of people who are. The biggest worker declines are in the U.S., Europe and Asia; the biggest areas of growth are in Africa and Southeast Asia. That worker-population shift is one of the dynamics in the Emerging 7 countries (China, India, Brazil, Mexico, Russia, Indonesia and Turkey) gaining more of the world’s purchasing power by 2045, he said.
Such trends put a greater emphasis on demand forecasting, which has traditionally been a challenge for many businesses. Enright said that, in the last 20 years, Gartner researchers have found no improvement on companies’ ability to improve demand-forecasting accuracy. He identified five factors — competitor pricing, shipping/return policy, demand transfer, social commentary and weather data — to add to demand-forecasting algorithms to “recreate the environment in which historical sales occurred” and produce more accurate results.
Using machine learning to improve forecasting accuracy is one objective in the digital dexterity that organizations will need to navigate a new world order in trade, Enright said. It means creating a new workforce in which humans and machines work together to take control of a company’s supply chain network. “No, robots are not going to take over the world,” Enright said. “They are going to take over the part of the world that is right for them to do so, and I think that many organizations are already feeling comfortable about that concept. … We have a concert of human and AI (artificial intelligence) symbiosis, where both elements are better together than alone. It’s a case of collaboration.”