Threat of Tariffs Causes Chip Demand Surge
The threat of tariffs is already causing supply chain implications. There is a surge of chip demand post election. According to Trendforce, the chip supply chain is seeing a rush of orders. The Commercial Times has said that Wi-fi chip sets are a major source of restocking in the first quarter of 2025. China’s subsidy program for replacing old devices has depleted inventories. Additionally, the threat of tariffs is causing a pull-in effect exaggerated by the year-end peak season and Lunar New Year shutdown effects. Since China produces 60% of computer chips for the world, the threat of tariffs combined with the increasing use of advanced technologies is creating a demand surge. When demand and supply are out of alignment, disruptions occurs.
Tariff Concerns in Mexico and Canada
Trump said that he would impose 25% tariffs to Mexico and Canada if they didn’t stop illegal drugs and migrants from crossing the borders into the U.S. According to FreightWaves and C.H. Robinson, this announcement created immediate customer concern. C.H. Robinson said that they have been pulled into countless customer meetings to run risk scenarios. Since many customers especially those with integrated supply chains like automotive consider treat North America as a singular supply chain, scenario planning has become a hot topic.
There are also concerns about the lack of labor resources. A mass deportation of undocumented migrants could greatly impact industries like construction, agriculture, and manufacturing. Since labor shortages has already been a theme, these tariffs could add fuel to the fire. There are plenty of news articles raising these concerns in addition to the potential inflationary impact of tariffs. To learn more about how to proactively address labor shortages and other potential concerns, download our special report, FutureScape: Crafting Tomorrow’s Supply Chain Today.
Growth in Manufacturing & Headwinds for Logistics
There are several companies reevaluating their supply chain. Although the elevated geopolitical and supply chain risk levels has been compelling a move to regional supply chains, the threat of tariffs pushes these initiatives into high gear. For example, medical devices and healthcare products put national security and a secure supply of critical products in focus. Thus, although these industries have been slower to reshore and expand U.S. manufacturing, a trend is starting to form.
According to the American Society of Health-System Pharmacists (ASHP), ongoing and active shortages have reached a record high in the U.S. These types of risks are spurring a grow in regional manufacturing and expansion in the U.S. For example, Eli Lilly and Company announced a $3 billion expansion of the Kenosha County manufacturing facility that the company acquired earlier this year. It has also announced other multibillion-dollar manufacturing expansion projects near its Indianapolis headquarters. Reckitt Benckiser is also expanding U.S. manufacturing as it wants to respond faster to shifts in demand for over-the-counter pharmaceuticals. Thus, it is $200 million into a factory in North Carolina. And Nipro Medical Corporation, a leader in the global healthcare and medical device industry, announced that it has selected Pitt County for its first North American manufacturing center of excellence.
U.S. manufacturing has been contracting yet showing signs of growth with interest in expansions and reshoring of manufacturing. On the other hand, the Logistics Managers Index (LMI) has been in expansion territory and fueling positive trends as companies prepare for year-end, Lunar New Year, and the threat of tariffs. Most experts expect a good start to the New Year, followed by uncertainty as the new administration takes over. According to Brandon Fried, executive director of the US Airforwarders Association, we are bracing ourselves for a lacklustre year.
What is Known? VUCA Rages On
Amidst the concerns around tariffs, VUCA (volatility, uncertainty, complexity, ambiguity) is nothing new. Since the pandemic, the one constant has been change and disruption. These patterns will carry forward as supply chains evolve. Just using common sense, it is obvious that at a minimum, executives will be rethinking their supply chains. Companies that stay in business will assess their suppliers, evaluate manufacturing options, reassess investments, mitigate key risks, and will proactively navigating changing conditions in demand and supply with a process like SIOP (Sales Inventory Operations Planning).
By predicting demand and reallocating and redistributing their manufacturing capacity and logistics infrastructure, companies will stay ahead of VUCA, mitigate risks and maximize profits. It is vital to not become complacent in monitoring demand and supply and incorporate a review of key highlights, strategic decisions, and changing conditions it into a weekly, monthly, and quarterly SIOP cadence. To learn more about how to achieve SIOP success, download our complimentary book, SIOP: Creating Predictable Revenue and EBITDA Growth.
In addition to SIOP, proactive companies are transforming their supply chains. They are upgrading their planning processes, leveraging base technologies such as MRP systems, and taking the leap forward with advanced technologies such as advanced planning, predictive analytics, and leveraging robots and AI to automate, digitize, and proactively scale their capabilities. If you’d like to learn more about our new executive playbook service for assessing where to focus, contact us.
If you are interested in reading more on this topic:
What the Election Means for Manufacturing and Supply Chain