Brexit, TPP, NAFTA’s evolution, China’s Belt & Road initiative (and others) are disrupting traditional WTO-based trading and offer opportunities. Both manufacturers and companies that rely on them (e.g. Apple) need to adjust to an emerging environment of volatile tariffs and non-tariff trade barriers. Along with the disruption of existing arrangements, there will be new market opportunities and supply networks to tap into, with room to build new relationships.
Manufacturing strategy is about more than cost!
Manufacturing Strategy is about what you build (versus buy), and where and how you build. In making these choices, companies must balance cost; quality; delivery speed and accuracy; and flexibility. By “flexibility” , we mean the ability to withstand exchange rate fluctuations, changes in shipping rates,operations disruptions, and changing tariffs/ non-tariff trade barriers.
Where you build can have huge implications for flexibility: choices about your manufacturing footprint (such as scale, number, location, concentration of factories) affect your ability to withstand changes in the trading environment. In particular, manufacturers with global markets may find it worthwhile to maintain production capability within multiple trading blocs, to offset the risk of higher costs or trade disruptions between blocs. Greater complexity in a set of manufacturing plants, however, can increase costs as well as reduce delivery speed & accuracy. A coherent manufacturing strategy balances these competing goals and empowers the business strategy.
In addition to focusing on independently minimizing costs at each factory, manufacturers need to start managing their manufacturing plants as a network, accepting higher costs at some in order to achieve lower production cost for the entire network, over a range of potential trade and demand scenarios. This is key to achieving manufacturing flexibility in a world of volatile trading relations.
As we’ve discussed in prior posts (https://eos-consultingllc.com/blog-entries ) , global trade relations are in flux. Long-established trade flows are being disrupted, and more disruptions threaten (e.g., BREXIT). A coherent manufacturing strategy will be critical to navigating these troubled waters.