Written by Russel Beron Jan, 27th 2019
As we start the year we are many of the same trends which will impact supply chain management software, including volatile trade relationships, geopolitical tension, a slowdown in consumer purchasing due to recession fears and ongoing evolution in the way manufacturers and retailers do business. We have summarized some of these key trends below.
Shifting Production
We will continue to see shifts in production away from China, a trend that was happening before the heightened tension with China, especially for apparel and textiles. Asian countries such as Vietnam, Bangladesh, Cambodia and Myanmar will continue to absorb apparel and increasingly electronics production. Latin American countries including Brazil, Columbia and Mexico which are closer to North American markets will also continue to pick up production moving out of China. Certainly this shift brings risk and uncertainty as there are costs in shifting production and establishing new supply chain management software and building manufacturing capacity.
Manufacturing Disruption
Rising labor costs, shifts in production, labor shortages and digital supply chains are set to further disrupt manufacturing through 2020. Artificial intelligence, cloud computing, advanced analytics, automation, robotics and additive manufacturing will all continue to impact global manufacturing through 2020, providing manufacturers with greater insight, flexibility and transparency but also with some uncertainty. These innovations allow manufacturers to shift production more easily, maintain lower levels of inventory, have more flexible fulfillment options and forecast more effectively. Businesses that are not keeping pace with innovation will struggle to remain competitive in this new landscape where visibility and automation will become the norm.
Retail Evolution
As ecommerce continues to grow the retail landscape continues to change with long-established brands disappearing and new brands appearing overnight. Adoption of technology in the form of supply chain insight and visibility, forecasting, analytics and customer insights will determine competitiveness in the retail landscape. Businesses that have not adapted to this environment risk becoming obsolete. Another shift we are seeing, especially in China, is a slowdown in consumerism, with younger Chinese consumers saving rather than spending as they face economic uncertainty and fewer job prospects for the first time. With many European countries bordering on recession and the US at risk of a slowdown, retailers will need to adapt to a more competitive environment.
Global Trade Tension
The US and China are set to sign an initial trade deal on January 15 at the White House, with a second phase deal to be signed later. Although the deal leaves most tariffs in place, it does provide some relief for businesses impacted by rising tariffs and more importantly reestablishes some stability for the global business environment. While an easing in the China/US trade war and a tentative deal is good news, we can expect to see more tension and volatility. US PMI data highlighted contraction in the US economy for December with manufacturing expected to remain soft in the first Quarter. Coupled with a strong dollar, US exports are expensive, and Trump’s promise of reviving American manufacturing is not looking good. Trade tensions also extend beyond China and the US to the US and Europe, where Trump has threatened tariffs.
Geopolitical Risk
Following a US drone strike in early January which killed prominent Iranian general, Qasem Soleimani, tensions have heated between the US and Iran, with Iran threatening reprisals. This action brings the risk of major escalation with Iran, which has already opted out of its agreement to limit nuclear weapons development. Politically it has pushed hardliners in both Iran and Iraq as well as other Middle East countries closer and economically it puts pressure on oil supply and prices which had enjoyed a balance after OPEC had successfully reduced supply to stabilize prices. Short of engaging in all-out war, the likelihood is that Iran will disrupt oil supply, engage in cyberwar and support terror organizations such as Hezbollah and others in targeting the US.
European Instability
The Brexit has caused a lot of tension which now appears to be settling as Boris Johnson has consolidated his hold in the UK. The outcome and impact of the Brexit is still unclear though. The new deadline for the UK to leave the EU is January 31, pending approval by Parliament. Most likely the UK will receive an extension to the transition period which will give it time to work out trade relationships and other details with the EU. This means that the UK will face ongoing volatility through 2020 until a trade deal can be finalized. The reality is also that trade deals can take years to negotiate and this will mean that businesses will be cautious about investing and hiring. Boris Johnson has said he is looking for a trade deal like the one the EU signed with Canada, which could see significant trade barriers between the two.
All these issues and more are covered in the most recent Q1 2020 Sourcing Report. To learn more about how to address some of these issues with the CBX platform, feel free to contact us directly.