Plan for Change: How to Make Sure Your Supply Chain Remains Resilient in the Midst of Political Uncertainty

These days, disruption is a big part of the cost of doing business. Many of us feel we’ve got more than our share of uncertainty, thanks to technological advances, globalization, demographic shifts, and natural disasters. But U.S. companies today must also pay attention to political uncertainty in their supply chain and logistics risk profiles.

The current U.S. administration is not averse to disruption, and risk professionals in the supply chain and logistics sector need to be prepared to manage political and regulatory unknowns. Gaining the upper hand on these “unknowables” includes cataloging potential business risks and opportunities, working with management to bolster resiliency, and assessing the impact of a changing political and regulatory landscape on strategic priorities and goals.

Ironically, many of the businesses that have successfully embraced uncertainty have done so by crossing borders to explore new markets and talent sources. Yet, these strategies may themselves be disrupted by some elements of the current administration’s policy agenda. The scope of the administration’s “America First” emphasis remains unclear, but uncertainty in three key policy areas—trade, talent, and tax—could threaten complex, cross-border supply chains.

International trade policy: Changes to trade policies, including new tariffs on steel and other goods, could trigger trade wars with major U.S. trading partners, raising manufacturing costs. Additionally, the much-discussed renegotiation of the North American Free Trade Agreement (NAFTA) with Mexico and Canada would significantly impact supply sources from those countries. Costs would likely rise, due to new tariffs on manufactured imports from Mexico or more-restrictive rules-of-origin requirements.

Faced with these or similar changes, companies would be challenged to continue to move products tariff-free around the NAFTA zone. These actions, in turn, would increase costs for intermediate inputs to U.S. firms, leading to higher consumer prices at home.

Looking beyond North America, less amicable relations with China and other nations could affect transportation routes. Transportation infrastructure plans, another element of the administration’s agenda, could end up shifting the costs of infrastructure improvements to public-private partnerships.

Talent: At a time when many executives are scrambling for scarce talent, immigration reforms could make things worse by limiting the availability of overseas talent. This brain drain could diminish U.S. companies’ ability to develop competitive goods and services domestically.

Tax reform: Tax reform brings both opportunities and challenges. The permanent corporate tax cut and transition to a territorial taxation system, which includes a 100-percent deduction for foreign dividend income, are wins for U.S. businesses. But other changes may prove more challenging. For example, anti-base erosion taxes could increase costs for businesses operating in global markets, and some international tax proposals risk retribution from U.S. trade partners.

Fortunately, risk professionals, including chief risk officers, chief compliance officers, and chief audit executives, can adopt strategies to address these uncertainties. Supply chain and logistics risk professionals should consider:

• Prioritizing the creation of a flexible supply chain, including contingency plans in case trade relations deteriorate.
• Taking a hard look at operating models to ensure they drive efficiencies in areas like corporate structure, global footprint, insourcing, and outsourcing. This type of review is an opportunity to analyze changes to the company’s risk profile in the supply chain and other key functions.
• Assessing how your company’s talent pool could be impacted by changes to visa eligibility. Plan ahead by identifying alternative talent sources. Your future workforce will need to be able to withstand tax, trade,and immigration changes.
• Examining the feasibility of fast-tracking capital projects to leverage low interest rates.
• With both tax and trade changes likely, looking closely at the future of insourcing and outsourcing, as well as onshoring and offshoring.

With the certainty of uncertainty, building resilience is the best plan of all.