Donald Trump may only have been inaugurated as the 45th US president a few days ago, but he is already having an influence on supply chains and could end up completely reshaping them.
One of Trump’s pledges has been to introduce tariffs on businesses manufacturing goods overseas before selling them in the US. He has called on firms to manufacture those goods in the US. He hopes that this will provide employment and financial benefits for the national economy.
While he hasn’t yet introduced any such tariffs some firms, especially in the automotive sector, have announced plans to bring some manufacturing back to the US.
Ford had planned to build a car production plant in Mexico, but cancelled those plans and instead said that it would redirect that investment into a plant in the US state of Michigan.
Fiat Chrysler has also pledged to invest billions of dollars and add 2,000 jobs at plants in Ohio and Michigan to build new SUVs and pick-up trucks.
The automotive firms were however quick to emphasise that these were business decisions rather than as a result of what president Trump had said.
But, if tariffs are introduced and more production does go back to the US, procurement will be asked a number of questions. Most notable, the impact on costs and how it will change supply chains.
In terms of costs, there will no doubt be a rise. Higher labour costs in the US will flow through to consumers.
Meanwhile, there will be an uptick in work for American suppliers in favour of those based in Mexico, as an example. This would make firms more responsive and perhaps even more efficient in terms of getting products to the US market.
However, they won’t turn their backs completely on suppliers across the border, simply because it will ramp up risks.
The likelihood is that firms such as these will continue to source goods internationally but then assemble the final product in the US, depending on what the tariffs relate to.
Either way, the supply chain in America is set to change and procurement will need to be agile enough to adapt to those changes as and when they come. Working closely with the legal department is key and so to is keeping in close communication with suppliers. Any uncertainty will feed through the supply chain and that is ultimately what procurement wants to avoid.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.