Better Economy? The Manufacturing Supply Chain is Booming
Have you noticed a change in the working operations of your manufacturing supply chain? Have your shipments been up in 2018? For manufacturers, logistics professionals, and supply chain experts, 2018 is shaping up to be a great year for business growth. Mainly due to macroeconomic factors that are impacting the entire economy, this year is shaping up to be better than expected.
In the most recent Manufacturing ISMÒ Report on Business, it was found that “economic activity in the manufacturing sector expanded in April, and the overall economy grew for the 108th consecutive month…” There are many reasons why this growth is occurring, and manufacturing supply chain teams should pay attention to the bigger economic picture for better long-term business growth.
What Economic Factors Impact the Supply Chain?
Factors that impact the supply chain include the current value of dollar, new tax laws in the United States, the renegotiation of NAFTA issues, and the proposed changes to the United States tariffs of imports (specifically metals like steel and aluminum). However, not every bit of news will lead to growth, and tariff changes are actually deterrents for United States supply chains. Even though every factor is not positive, the net effect is.
The Dollar Impacting Exports
Whether it is going up or going down, the value of US dollar is always a primary macroeconomic factor in the manufacturing supply chain. Over the past year, the United States dollar dropped by about 7% compared to other world currencies. Technically this makes United States export a popular decision for purchasers, but a 7% difference is not enough to make or break the marketplace.
According to a Commerce Department report released in May 2018, “consumers shrugged off rising gasoline prices last month…U.S. retail sales rose in broad fashion amid a boost to paychecks from tax cuts…” The average consumer doesn’t keep an eye on the value of dollar on a daily basis but as a macroeconomic factor, it doesn’t hurt to consider its impact.
New Tax Laws Passed in December 2017
The signing of the Tax Cuts and Jobs Act (TCJA) in December dropped tax rates for manufacturers. Previously some manufacturers had a financial advantage for foreign subsidiaries to move intellectual property outside of United States. With the new lower tax rates, there is no advantage in parking intellectual property in Ireland or Luxembourg.
In the past, companies often chose between in-country exports and lower taxes. With better rates in the United States, there is much more incentive to hire U.S. citizens, make use of technology available near company headquarters, and even negotiate with regional suppliers. The trickle effect of tax cuts should impact the manufacturing supply chain in a positive manner for years to come.
NAFTA Negotiations Make a Difference
The North American Free Trade Agreement (NAFTA) currently sits in its eighth round of meetings with countries still at an impasse about exact terms. NAFTA rules involve the United States, Mexico, and Canada. So, any rules imposed would impact certain sectors much more than others. (The auto industry is mostly within North America for example). The current agreement grants preference on tariffs for certain practices and if the agreement gets removed, businesses will be less obliged to produce outside of the United States.
Tariffs on Metals
During March 2018, the United States imposed additional tariffs on steel and aluminum except for Canada and Mexico. Originally it was expected the tariffs might cause a second-quarter economic downturn, but it seems that manufacturers are not adjusting rapidly due to this tariff.
It is important to note: trade tariffs on these two metals could impact the United States economy in the long-term as suppliers and manufacturers’ long-term contracts are generated. Industry Week reports, “the supply chain perspective on tariffs is straightforward: U.S. manufacturers work in global markets and will source wherever they can get the best price…China is here to stay.”
An Example of the Growth
For a number of professionals, seeing the growth is quite difficult in your daily life. One recent example of a growth update is Hewlett Packard’s foray into the use of 3D printing for manufacturing supply chain. According to the company reports, they will be able to use 3D printing for lowering production costs, boosting customer satisfaction, and getting items to market much faster.
Because of macroeconomic factors like the value of dollar improving HP’s stance and new tax laws, organizations can grow through research and development as well. This is just one example of a manufacturing supply chain within one organization. Imagine the massive changes across the entire industry that are happening!
What Can the Average Business Do?
If the United States economy is on the rebound, there are multiple ways this pertains to the average business. As a manufacturer or part of the supply chain, the most common ways to take advantage of an economic boom are through new technology, focusing on the numbers, and sustainability. The previous example of Hewlett Packard reveals a company putting its efforts into all three of these factors.
For a manager in the supply chain or a manufacturer working within the United States, a focus on technology, numbers, and sustainability cannot hurt. Focusing on technology decreases costs and improves products. Paying attention to the numbers, specifically product growth, allows you to predict the supply chain future. Sustainability solutions get you noticed and help you beat the competition.
Supply Chain Management is Thriving
The four macroeconomic factors, also identified as major shifts, drive the U.S. economy. There are unique challenges facing the system but there is also technology and innovation to assist in more rapid growth. Pay attention to the remaining quarters of 2018, it has the potential of being a difficult but rewarding year for supply chain managers.