What does innovation look like when your product was created 150 years ago? That's the question Brian Dodge, president of the Retail Industry Leaders Association (RILA), posed to Chip Bergh, president and CEO of Levi Strauss & Co., during the Tuesday morning keynote session at the RILA LINK2020 supply chain conference.
"Innovation is our life blood," said Bergh as he described the changes that the company made to resurrect the once struggling brand.
The key to improving its innovation program was using sustainability as a constraint, according to Bergh. "If you a have an innovation program that has no constraints, it's going to waste money," he said. "If you focus on something that you are trying to solve, that produces results."
Levi's, for example, has changed the way it manufactures jeans by using "waterless technology," which allows the company to use 96% less water in its denim finishing process. It has also cut down on the number of chemicals needed in the process by using lasers to give the jeans a worn-in look.
But the benefits of lasers go beyond sustainability. Lasers can also apply patterns, artwork, and other types of customization on the jeans that couldn't be applied by the traditional hand finishing method. Furthermore, they enable mass customization and late-stage postponement of the final jean finishing process, closer to the end customer, which reduces waste.
In fact, as complementary technology develops, Bergh believes that in ten years, there will be no need for sizes anymore. Body scanning capabilities could soon be embedded into smart phones, enabling consumers to more easily order jeans tailored to fit their exact dimensions.
"The technology is not too far away, and it will be scalable," Bergh said.
That result came from the company’s “GEP Global Supply Chain Volatility Index,” an indicator tracking demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses. The October index number was -0.39, which was up only slightly from its level of -0.43 in September.
Researchers found a steep rise in slack across North American supply chains due to declining factory activity in the U.S. In fact, purchasing managers at U.S. manufacturers made their strongest cutbacks to buying volumes in nearly a year and a half, indicating that factories in the world's largest economy are preparing for lower production volumes, GEP said.
Elsewhere, suppliers feeding Asia also reported spare capacity in October, albeit to a lesser degree than seen in Western markets. Europe's industrial plight remained a key feature of the data in October, as vendor capacity was significantly underutilized, reflecting a continuation of subdued demand in key manufacturing hubs across the continent.
"We're in a buyers' market. October is the fourth straight month that suppliers worldwide reported spare capacity, with notable contractions in factory demand across North America and Europe, underscoring the challenging outlook for Western manufacturers," Todd Bremer, vice president, GEP, said in a release. "President-elect Trump inherits U.S. manufacturers with plenty of spare capacity while in contrast, China's modest rebound and strong expansion in India demonstrate greater resilience in Asia."
Strikes and potential strikes have plagued the supply chain over the last few years. An analysis of data from the Bureau of Labor Statistics by the Economics Policy Institute concluded that the number of workers involved in major strike activity increased by 280% in 2023 from 2022. Currently, the U.S. East Coast and Gulf Coast ports are facing the threat of another dockworker strike after they return to the negotiating table in January to attempt to resolve the remaining wage and automation issues. Similarly, Boeing is continuing to contend with a machinists strike.
Strikes, or even the threat of a strike, can cause significant disruptions across the global supply chain and have a massive economic impact. For example, when U.S. railroads were facing the threat of a strike in 2022, many companies redirected their cargo to avoid work stoppages and unhappy customers. If the strike had occurred, it would have had a massive economic impact. The Association of American Railroads (AAR), estimated that the economic impact of a railroad strike could be $2 billion per day.
Similarly, although the U.S. West Coast ports avoided a strike in 2023, the labor negotiations caused companies to reroute freight. For example, companies with locations on the East Coast went through the Panama Canal instead of having their cargo land at West Coast ports. As a result, West Coast ports’ market share dipped during this timeframe. Now as the East Coast and Gulf Coast ports try to finalize negotiations to seal the deal with the International Longshoremen’s Association (ILA), companies are searching for alternative routes and transferring their shipments back to West Coast ports. The economic impact of the strike is estimated at $3.8 to $4.5 billion per day by J.P Morgan.
Labor negotiations also threaten to further exacerbate inflationary trends, which have been a key concern across the supply chain. The ILA and port operators reportedly reached a tentative agreement to increase wages by 62% over the next six years. Similarly, the Boeing machinist strike is mainly related to a request for a 40% pay raise, with machinists recently rejecting a proposed 35% increase. These demands come as companies and consumers across the spectrum are resisting increased costs.
Nor are these strikes completely focused on pay increases. The ILA is also demanding a total ban on the further automation of cranes, gates, and container movements that are used in the loading or loading of freight. This issue still remains unresolved. Such a ban would not only increase costs, it would also threaten the competitiveness as the U.S. ports, which are already some of the least competitive in the world. According to the Wall Street Journal, L.A. and Long Beach ports are about half as productive as China’s best port in terms of average container moves per hour.
Creating a Resilient Supply Chain
Labor unrest and strikes have caused executives to open their eyes to the volatility, uncertainty, complexity, and ambiguity (VUCA) in their supply chains. Many are responding to the volatility and disruptions by working to create more resilient supply chains.
No company can thrive in a supply chain disruption-ridden environment if it is not prepared to pivot as conditions change. However, preparation alone will not suffice. To thrive in a VUCA world, companies should be ahead of changing conditions or perhaps flip the situation on its head to become the disruptor instead of the disrupted. As the competition struggles to maintain customer service levels, profitability, and working capital requirements in the face of disruptions, companies with a more resilient supply chain will gain market share.
There are several strategies to create a resilient and proactive supply chain. The most successful approaches include rethinking strategies, upgrading business processes, and automating and utilizing advanced technologies. The bottom line is to create resiliency/flexibility, quick responsiveness, and upgraded performance.
Rethinking Strategies
Old strategies will no longer suffice in this more volatile world. For example, producing in China to reduce labor costs provides no resiliency when chokepoints arise in the global supply chain and/or as geopolitical risks surge. For example, the Red Sea crisis has created a supply chain chokepoint, delaying goods transiting from northeast Asia to the East Coast of the U.S. and Europe. Container ships have re-routed around the southern tip of Africa, adding cost, time, and other risks to the trip. As labor disputes and/or strikes arise, the risk increases that the product will get stuck or delayed in transit. If there are strikes on the East Coast and Gulf Coast ports, ships will have to divert to the West Coast and be shipped across the country, adding time and cost. By moving manufacturing closer to customers and consumers through reshoring, nearshoring, and vertical integration efforts, these risks are mitigated. If local disruptions do occur, companies can recover quicker due to the shorter distances, quicker lead times, and greater control.
Thus, proactive executives are rethinking their manufacturing and supply chain network. For example, Ascential Medical & Life Sciences last year expanded its domestic manufacturing footprint, opening a 100,000-square-foot facility in Minnesota that will specialize in developing custom manufacturing machinery and solutions for medical and life science companies. The facility is part of a broader reshoring effort by the company.
In a similar vein, many companies, such as GM, Samsung, and Dell, have followed a nearshoring (also called friendshoring) strategy to Mexico. By moving closer to customers, they not only are more resilient but also can take advantage of trade agreements, such as the United States-Mexico-Canada Agreement (USMCA), as well as lower regulations and costs.
In addition to moving manufacturing, companies are also diversifying their supply base. They are pursuing strategies such as adding backup sources of supply, establishing strategic partnerships and joint ventures, and vertically integrating their supply chain.
Upgrade Business Processes
The most successful companies are aggressively upgrading strategic processes to support resiliency, customer success, and profitability. For example, rolling out an SIOP (Sales, Inventory, Operations Planning) process can help companies respond more quickly and proactively to changing customer demand and/or supply chain disruptions. Similarly, companies that have upgraded their demand, production, and replenishment planning processes are able to provide customers with higher service levels while also freeing up cash by reducing unnecessary inventory. These upgraded planning processes also improve margins by increasing efficiencies and productivity while reducing waste.
For example, a manufacturer of health care products utilized a SIOP process to better predict revenue and to create a better operational rhythm. The company’s demand plan was translated into machine capacity and critical raw material requirements. By taking this step, the company became aware that it needed to get a backup supplier to avoid a potential critical chokepoint in the supply chain. At the time, the manufacturer was purchasing all of its most important material from Brazil. Due to geopolitical risk in the region, there was the potential for supply chain disruption. To mitigate this risk and ensure reliability, the manufacturer began sourcing 20% of its material requirements from a backup supplier in the United States. Fast-forward a few years, and there was a port strike that made it difficult to receive the materials from Brazil. The manufacturer’s SIOP process provided a forecast of what was required to bridge the supply gap during the disruption. Because of the already existing relationship, the backup supplier was willing to ramp up volume to cover the manufacturer’s supply gap, even though the supplier was receiving an overload of requests from other companies. As a result, the manufacturer was able to maintain supply of this critical material and continue to meet its customer service levels. While its competition struggled, the health care manufacture was able to grow its revenue by 15%.
Automate & Digitize
Technology can also help companies respond better to disruptions and volatility. For example, advanced planning systems can help planners can quickly pivot with changing conditions, such as strikes. The most advanced of these systems will be equipped with artificial intelligence (AI) capabilities that will recommend changes on the fly to satisfy customer needs in the most profitable and least risky manner. For example, as strikes arise, the system will quickly assess changing conditions and recommend that the manufacturer move demand to plants and/or routes not impacted by the strike. The planning systems will also provide the planners with a better picture of requirements so that they can change production plans and ensure high service levels for customers.
In the same fashion, companies that automate their manufacturing processes, such as by using robotic welders, can more flexibly respond to changing customer requirements change while also mitigating costs. Similarly, companies that use additive manufacturing technologies can produce and customize on demand. By using robotics and automation equipment, manufacturers can run lights out, thereby increasing output and flexibility, while reducing cost. Therefore, if a strike occurs at the manufacturer, some level of production is likely to occur, as long as they can assign a resource to keep the robotics and automated equipment running.
In logistics, advanced technologies can seamlessly sort, package, and move products. These technologies can help companies quickly respond to changing conditions so that packages can be re-routed at any time. Similarly, transportation planning can use predictive models to optimize freight costs and rerouting shipments through the global supply chain in response to changing conditions, thus ensuring timely deliveries. For example, as strikes arise, the system will quickly assess a company’s transportation network, evaluate alternative routes, and recommend the optimal one. Changes will also be made to current routes for goods in transit so that they meet the customer due dates at the lowest cost.
Delivering Bottom Line Business Results
The bottom line is to create a resilient supply chain and craft tomorrow’s supply chain today. Companies that invest smartly in the future will be prepared to take market share as disruptions occur. There will be more opportunity than ever before for those that rethink strategies, upgrade business processes, and automate and digitize their end-to-end supply chain.
About the author: Lisa Anderson is founder and president of LMA Consulting Group Inc., a consulting firm that specializes in manufacturing strategy and end-to-end supply chain transformation that maximizes the customer experience and enables profitable, scalable, dramatic business growth. She recently released SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue & EBITDA Growth that can be found at https://www.lma-consultinggroup.com/siop-book/.
Regardless of the elected administration, the future likely holds significant changes for trade, taxes, and regulatory compliance. As a result, it’s crucial that U.S. businesses avoid making decisions contingent on election outcomes, and instead focus on resilience, agility, and growth, according to California-based Propel, which provides a product value management (PVM) platform for manufacturing, medical device, and consumer electronics industries.
“Now is not the time to wait for the dust to settle,” Ross Meyercord, CEO of Propel, said in a release. “Companies should approach this election cycle as an opportunity to thrive in the face of constant change by proactively investing in technology and talent that keeps them nimble. Businesses always need to be prepared for changing tariffs, taxes, or geopolitical tensions that lead to unexpected interruptions – that’s just the new normal.”
In Propel’s analysis, a Trump administration would bring a continuation of corporate tax cuts intended to bolster American manufacturing. However, Trump’s suggestion for spiraling tariffs may benefit certain industries, but would drive up costs for businesses reliant on global supply chains.
In contrast, a Harris administration would likely continue the current push for regulatory reforms that support sectors like AI, digital assets, and manufacturing while protecting consumer rights. Harris would also likely prioritize strategic investments in new technologies and provide tax incentives to promote growth in underserved areas.
And regardless of the new administration, the real challenge will come from a potentially divided Congress, which could impact everything from trade negotiations to tax policies, Propel said.
“The election outcome is less material for businesses,” Meyercord said. “What is important is quickly adapting to shifting policies or disruptions that address ‘what if’ scenarios and having the ability to pivot your strategy. A responsive manufacturing sector will have a significant impact on the broader economy, driving growth and favorably influencing GDP. One thing is clear: the only certainty is change.”
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Supply chain professionals should be aware of how the different policies proposed by the U.S. presidential candidates would affect supply chain operations.
For both Donald Trump and Kamala Harris, the revival of domestic manufacturing is a key campaign theme and centerpiece in their respective proposals for economic growth and national security. Amid the electioneering and campaign pledges, however, the centrality of supply chain policy is being lost in the shuffle. While both candidates want to make the supply chain less dependent on China and to rebuild the American industrial base, their approaches will impact manufacturing, allied sectors, and global supply chains much differently despite the common overlay of protectionist industrial policy.
Both Trump’s “America First” and Harris’ “Opportunity Economy” policies call for moving home parts of supply chains, like those that bring to market critical products like semiconductors, pharmaceutical products, and medical supplies, and strengthening long-term supply chain resilience by discouraging offshoring. Harris’ economic plan, dubbed the “New Way Forward,” aims to close tax loopholes, strengthen labor rights, and provide government support to high-priority sectors, such as semiconductors and green energy technologies. Trump’s economic plan, dubbed “New American Industrialism,” emphasizes tariffs, corporate tax cuts, and easing of regulations.
Supply chain policy differences in rhetoric and priorities will become a growing attack vector in the lead-up to Election Day. While political discussions focus on the economic benefits, corporate leaders need to understand the implications of policy changes and the effect on their firms’ ability to navigate risks and disruptions.
U.S. manufacturing base and supply chains
Trump’s emphasis on sweeping tariffs creates uncertainty over supply security and fears of inflation. Harris’ continued emphasis on “Bidenomics,” such as the Inflation Reduction Act and the CHIPS and Science Act, impacts multitier global supply chains and trade policy around the world. Under either plan, the net effect would be that free trade will continue to regress under the impulses of decoupling from high-risk markets, geopolitics, and regionalization. Both parties emphasize the opportunity to create new, well-paid jobs. At the same time, customers are likely to have to bear the higher costs, either directly by paying higher prices in stores or indirectly through subsidies financed by taxpayers’ money.
Labor, immigration, and the workforce
Trump’s emphasis on mass deportation of illegal immigrants will impact the manufacturing and agricultural sectors that already have labor shortages. Harris’ focus on labor rights will amplify organized labor’s influence in supply chain operations and thereby increase costs as seen in the recent longshoreman strike on the East and Gulf Coasts. Both directions will only strengthen inflationary pressures and cause organized labor to resist technological advances such as automation and artificial intelligence to replace jobs. The net effect is that organized labor sees its influence growing under either election outcome, resulting in more potential strikes, and the educational sector being called upon to develop the requisite training and development programs and public–private partnerships to address the manufacturing and supply chain skills gap. Access to top domestic and global talent will be critical to support a growing U.S. manufacturing base.
Sustainability
Trump would roll back some of the environmental regulations, climate initiatives, and decarbonization measures. Big Oil companies, such as Exxon Mobil and Phillips 66, however, have come to embrace the low-carbon energy provisions of the Inflation Reduction Act. Harris is expected to strengthen protections and enforcement alongside international allies and partners. In continuation of the Inflation Reduction Act, a Harris administration would continue providing incentives to green technologies and businesses. The net effect of both approaches would be that corporate leaders will stay committed to decarbonization measures that were set in motion years ago.
Regardless of the election outcome, the uncertainty around supply chain policy will continue well into 2025. In particular, there are growing concerns about costs and their inflationary impact on the deficit and national debt; reform of the de minimis exemption for low-value imports; the role of friend-, near- and re-shoring; and the renewal of the U.S.-Mexico-Canada Agreement in 2026. The authors are hopeful that supply chain policy steps announced by the U.S. Department of Commerce in September at the Supply Chain Summit will be institutionalized and survive leadership turnover. The election outcome will determine supply chain policy’s next form and shape the U.S. economy’s ability to compete in an increasingly uncertain global market.
The firms’ “GEP Global Supply Chain Volatility Index” tracks demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses.
The rise in underutilized vendor capacity was driven by a deterioration in global demand. Factory purchasing activity was at its weakest in the year-to-date, with procurement trends in all major continents worsening in September and signaling gloomier prospects for economies heading into Q4, the report said.
According to the report, the slowing economy was seen across the major regions:
North America factory purchasing activity deteriorates more quickly in September, with demand at its weakest year-to-date, signaling a quickly slowing U.S. economy
Factory procurement activity in China fell for a third straight month, and devastation from Typhoon Yagi hit vendors feeding Southeast Asian markets like Vietnam
Europe's industrial recession deepens, leading to an even larger increase in supplier spare capacity
"September is the fourth straight month of declining demand and the third month running that the world's supply chains have spare capacity, as manufacturing becomes an increasing drag on the major economies," Jagadish Turimella, president of GEP, said in a release. "With the potential of a widening war in the Middle East impacting oil, and the possibility of more tariffs and trade barriers in the new year, manufacturers should prioritize agility and resilience in their procurement and supply chains."