One article title this week screamed: “Trump Put Companies on Notice: Outsource At Your Own Peril.[1]
President Elect Trump had his first news conference this week and a reporter asked a question of US companies continued sourcing. His response was:
“when you want to move your plant to Mexico or some other place … you’re going to pay a big border tax.”
Ouch. We have heard the tax may be 10% to 35%.
Let’s take a look at just one sector – the US automotive sector. This means that if cars are assembled or produced in Mexico and imported to the US will have to pay a tariff if they are being sold in the US.
This is a game changer for companies that had outsourced work and jobs to plants all around the world. And, this strategy is having an immediate impact:
- Ford canceled a $1.6 billion plant in Hermosillo, Mexico.
- Fiat Chrysler may withdraw from Mexico.
The reaction from Mexico has been reactive and fearful. Mexico’s Foreign Minister said:
“I think the uncertainty (over trade) is doing a lot of harm to investment decisions in the automotive sector and many other sectors.” [2]
SUPPLY CHAIN RISK MANAGEMENT
Trump’s election also impacted me.
Twelve years ago, we wrote a book called: Supply Management Strategies. We were updating it in the Fall and were calling it: Supply Chain Risk Management.
I listened to a Trump speech in the Midwest on global sourcing. I realized that Trump was connecting with lots of voters and had a good chance of being elected president. And if he were elected, the book now into 350 pages would have to be rewritten. Ouch …
So, now Trump is the president – elect. He is tweeting and warning companies of the impending changes. Companies that outsource are listening. Why?
Up to 80% of the manufacturing dollar is sourced to domestic or more often offshore suppliers. Especially with offshore suppliers, the impacts can be significant:
- Companies are going to have to develop new strategic plans to cope with the impacts.
- Companies with offshore suppliers may well have to pay a tariff to import these products.
- Companies will have to revisit the cost benefits of outsourcing.
- Companies will have to develop new domestic suppliers for their products and services.
This is going to be highly disruptive as the value of globalization and offshoring is revisited.
[1] Trump Puts Companies on Notice, Outsources At Your Own Peril,” January, 11, 2017.
- Ibid.
[2] “Mexico Again Says There Is ‘No Way’ It Will Pay for Trump Wall,” Reuters, January 12, 2017.
Bio:
Greg Hutchins PE and CERM (503.233.101 & GregH@QualityPlusEngineering.com) is the founder of:
CERMAcademy.com
800Compete.com
QualityPlusEngineering.com
WorkingIt.com
He is the evangelist behind Future of Quality: Risk®. He is currently working on the Future of Work and machine learning projects.
He is a frequent speaker and expert on Supply Chain Risk Management and cyber security. His current books available on all platform are shown below:
