The Impact of Economic Nationalism on Global Supply Chains

economic nationalismLast week, I read an interesting report from LLamasoft (a Logistics Viewpoints sponsor) that looked into the impact of economic nationalism on global manufacturers. The study found that more than half of global manufacturers would make changes to their supply chain due to economic nationalism. The study also looked at the impact of technology on the supply chains of global manufacturers. This week, I had the opportunity to speak with Razat Gaurav, CEO of LLamasoft, about some of the key findings. This article, with our Q&A below, is the latest in our series of executive interviews.

Chris Cunnane (CC): The results of your survey indicated that taxes & duties and economic nationalism are the two biggest challenges faced by manufacturers’ supply chains. Can you give some insight into why these challenges are top of mind for companies? And how do you see these challenges changing in the next 12 -24 months?

Razat Gaurav (RG): If you look at different supply chains around the world, duties and taxes generally account for 10 to 30 percent of the cost of goods sold, meaning any changes will have a significant impact on everything from sourcing to manufacturing to routing to distribution. In today’s uncertain tax and tariff environment, companies have to be constantly reevaluating where they’re sourcing goods from, where they place their manufacturing plants and even how they route products, meaning their supply chains are in constant flux. This in and of itself is enough to make tariffs and duties top of mind for organizations, but with the current political climate and rise in economic nationalism and governments from the U.S. to the U.K. to Europe to China rethinking their global supply chain structure and policies, the impact is even greater.

CC: Your survey dives into the latest technologies that manufacturers are using to design their supply chains. Specifically, the results indicate that IoT and machine learning are most likely to be used. Can you describe how manufacturers are using these technologies to design their supply chains and what the impact will be?

RG: IoT has made real time and granular data more accessible within the supply chain than ever before. A good example of this is in transportation and logistics. Companies are able  to incorporate IoT devices onto trucks and containers to gather data on traffic, temperature-control, driver hours, and get real-time visibility into their shipments. But this data and visibility alone does not provide the full business value to companies – they must also have ways to leverage that data to make smarter decisions. This became abundantly clear with the use of RFID tags. For some time, there was a lot of hype around RFID solving all supply chain problems. The reality was that RFID was another great data source but companies had more data than they knew what to do with, yet they had no tools to figure out what to do with all this data.

By coupling IoT data with the latest optimization, simulation and machine learning algorithms, companies can make smarter decisions faster. While today’s organizations are still figuring out exactly how to leverage these technologies, I feel that we’ll see more organizations using them in more practical ways that will have lasting impacts as we move into 2019. There are several use cases emerging where companies are already seeing tremendous value with this approach – examples include leveraging weather and social sentiment data in improving forecast accuracy, or using data from active devices to determine need for preventative maintenance and repair of assets, or leveraging real-time data from the shop-floor to continuously refine production schedules.

CC: Your survey also indicates that 31 percent of respondents identified the use of drones & UAVs as part of their supply chain design plans. How exactly are these companies using drones? How will the use of drones change over the next 1 – 2 years?

RG: Drones provide an interesting channel for distributing products. When you look at supply chains and consider traditional delivery methods, organizations face a significant challenge with the cost of last mile delivery, largely due to the human aspect of it – it costs a lot of money to have a driver on a truck hand-delivering packages to a doorstep. This challenge is only expected to increase as more of the population moves to cities, where physical infrastructure constraints add to the costs and challenges of delivery.

Drones help mitigate these issues by taking advantage of air capacity to free up highway and shipping lanes. LLamasoft has seen this work firsthand through our work in the public health sector in parts of Africa, where we used drones to deliver products to get around the lack of highway and bridge infrastructure. In the future, I expect to see drone adoption take off in the B2B space. Today’s drone usage is largely limited to consumer or customer fulfillment; however, as they become more reliable, I expect more businesses to consider using drones to transport supplies or products to other businesses.

CC: Supply chain design software is heavily used across the globe, with the exception of Japan. Why is that? Additionally, are there specific functionalities of the software that are more widely used in certain regions?

RG: Part of the reason is that supply chain design technology companies are still in the early stages of market penetration in the Japan – we certainly are at LLamasoft, even though we have seen a rapid uptake since we opened our office in Tokyo. In my experience there is also a greater cultural resistance to change in Japan, which sometimes creates organizational inertia to making changes resulting from a redesign of their supply chain.

However, there are several exceptions to this legacy mindset and we’re seeing several Japanese companies embrace the latest in supply chain design technologies. Several of the early adopters of these solutions have been Japanese headquartered companies with large global operations. As these companies grow, they are looking to take advantage of new efficiencies and new operating models, many of which can only be uncovered via supply chain design software.

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