The modern economy relies on the smooth operation of complex and sophisticated supply chains. The ability to move materials, components, and finished products in a timely and efficient manner has delivered benefits for many: reducing the cost of manufactured products, improving access to advanced technologies or life-saving medicines, and opening new markets and new business opportunities for producers.
Yet modern supply chains are also vulnerable. Transportation delays, theft, natural disasters, inclement weather, cyberattacks, and unexpected quality issues can disrupt cargo flows, creating short-term costs and delivery challenges. And shifts in local, national, and international trade and regulatory policies can upset the fundamental economics of established supply chains. Below is a list of trends that you should keep an eye onduring the upcoming year, examining their implications for your supply chain network.
1. TRADE WARS
Global trade tensions have led to the imposition of new import tariffs on a wide range of consumer products and industrial components. While the biggest fight has been between the United States and China, other countries and regions, notably the European Union (EU), have also been drawn into the fray. As the impact of the new arrangements begins to bite, companies are starting to adapt their supply chains in response.
In June 2018, U.S. motorcycle maker Harley Davidson announced that manufacturing of products destined for EU markets would be switched from U.S. factories to facilities in Brazil and Thailand. We expect this trend to accelerate in 2019, especially asthe U.S. and China introduce further tariffs and the United Kingdom and EU fail to agree on an orderly Brexit. German carmaker BMW has already announced that it is considering transferring production of its Mini brand from the U.K. to the Netherlands andplans to make SUVs for Chinese customers at plants inside the country. Honda also announced that it will be shutting down its flagship plant in Swindon, U.K., by 2021.
2. RAW MATERIAL SHORTAGES
While companies are increasingly pursuing local or regional manufacturing strategies for finished products, the production of many key raw materials remains highly globalized. As such, supply of some key materials is vulnerable to widespread disruption caused by demand spikes or production bottlenecks. At the end of 2018, plastics suppliers across Europe warned of impending critical shortages of certain polyamide materials, which are used in the production of engineered plastic components such as car parts. The issue is rooted in the low supply of adiponitrile (ADN), a precursor chemical. ADN is manufactured at only five plants in the world, and shortages have been driven by operational problems and maintenance shutdowns. Companies in the automotive, textile, electronics, and packaging industries may be forced to switch to other products, at least temporarily, although this may not always be possible.
An area of growing concern over the longer term is the materials used in lithium-ion batteries, which are used in a wide range of high-value products from mobile phones to electric cars. The German Mineral Resources Agency forecasts that demand for lithium will quadruple by 2035. And because two-thirds of the world's supply of cobalt, another essential component in lithium-ion batteries, is mined in Congo, some experts believe that instability in the region could drive a supply shortage in the near future. To secure their supply chains, Apple and some car manufacturers have already started to purchase cobalt directly on behalf of their battery suppliers.