By Slimane Allab, EMEA General Manager and SVP, LLamasoft.
The ongoing US/China trade war affects businesses’ supply chains in a variety of ways and not just in terms of increased taxes and tariffs.
It can also have an impact on demand and lead time variability for businesses, both of which are important considerations as companies seek to balance speed to market and increase of market presence with the incremental costs in supply chain.
If we take the example of the clothing industry, these trade-offs are more at play, where the decision on localising manufacturing and shielding tax costs must be weighed up against lead times and the impact on the market. As executives are looking at this changing environment, they need to be able to review the trade-offs of these variables and decide on the best course of action between off-shoring and near-shoring, taking their profitability into account. Deciding to manufacture locally because of changes to taxes and tariffs may have some benefits in terms of logistics and reducing cycle times but is likely to result in increasing costs in upstream supply chains.
Most companies still continue to operate with separate planning systems (warehousing, transportation, manufacturing, inventory control, etc.) that make it difficult for them to perform analysis across their end-to-end supply chain, evaluate options and confidently select the optimal plan – especially in times of uncertainty. Leading organisations are starting to use supply chain design and decision making technology to identify alternative strategies to mitigate against tariff increases. By creating a ‘digital twin’ of their supply chain, companies are able to accurately evaluate the impact of changes to existing systems and processes and test alternative scenarios without creating real world, real time disruption.
In order to determine where and how to optimise networks to mitigate against taxes and duties, digital twins are being used by an increasing number of organisations to transform their supply chains from cost centre to giving them a competitive edge. By being able to proactively understand the effect of global trade policy changes on supply chains through the use of advanced supply chain modelling, visualisation and analytics, business leaders can better plan for the future.