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Consumers often don’t know how goods end up on store shelves – whether physical or virtual. They either go to the store or click the checkout button and make a purchase.
But those in the business know that making it all seem simple are global supply chains – connections linking suppliers to factories to distributors to retailers and finally to customers. Efficient supply chains ensure shelves aren’t empty and can make or break a company’s profitability.
The U.S. Chamber of Commerce’s 7th annual global supply chain summit, Global Supply Chain: Future Trends on May 16 brings together business leaders, policymakers, and other experts to look into their crystal balls to see the emerging opportunities for global supply chains.
To get a taste of what will be discussed, Jane Holl Lute recently sat down with John Drake, executive director of supply chain policy for the U.S. Chamber of Commerce, to talk about emerging opportunities and threats in trade, the U.S.’s relationship with China, and the mission of the Department of Homeland Security.
Lute is the president and chief executive officer of SICPA North America, a company that specializes in providing solutions to protect the integrity and value of products, processes, and documents. She also served as deputy secretary of the Department of Homeland Security from 2009 to 2013. Read the interview below for some of her insights into the future of global supply chains.
Drake: Illicit trade – including counterfeiting, smuggling, and "grey markets" – is a growing problem for businesses worldwide. What is driving the growth of illicit trade, and what steps should every business take to combat it?Lute: What’s driving the growth of illicit trade is what drives growth in commerce, generally – the potential for profitability, including the ability to avoid costs associated with trade, principally tariffs, taxes, and other transaction costs. Counterfeit goods alone cost the U.S. economy up to an estimated $600 billion annually. Illicit trade is a profitable business, and there is no single sector of the world economy that’s immune.
Businesses can protect themselves in a number of ways, including implementing definitive authentication of goods and actors, enabling traceability across the supply chain, and leveraging technology for continuous innovation. I’d encourage businesses interested in learning more to take a look at a supply chain security infographic released by SICPA and the U.S. Chamber. Along with some of the major threats to supply chains, we also include best practices businesses should consider for safeguarding their supply chains. The infographic gives you a lot to think about when it comes to protecting yourself and addressing other security vulnerabilities.
Drake: Between USMCA (United States-Mexico-Canada Agreement) and negotiations with China, trade is dominating the news cycle and is top of mind for many Americans. Can you describe the impact that these trade negotiations will have on global supply chains in the near future?
Lute: The trade relationship between the U.S. and China is vitally important to U.S. businesses. China is the U.S.’ largest trading partner. Trade in goods and services between the two nations added up to more than $700 billion in 2018, and supported nearly one million jobs in the U.S., according to the United States Trade Representative.
There is no question that the U.S. and China both represent important sources of goods and important destinations for products, but they (a) can’t agree on a trading regime and (b) are persistent in antagonizing each other in the course of this negotiation – creating enormous instability and broad uncertainty.
Whether you are a manufacturer or a trader, or you use conveyances like trains, ships, trucks, or aircraft, everyone is affected when large-scale relationships are not operating on a predictable path that enables everyone to understand where they fit in the larger scheme.
Drake: What do you see as the biggest emerging threats facing global supply chains?
Lute: In the context of globalization and the relatively easy availability of raw materials, labor, and component parts in overseas markets, there are real potential advantages for manufacturers in terms of cost savings – notwithstanding transportation costs – but globalization also results in more vulnerability to market complexity and instability. Threats inherent in the global supply chain include the instability at the source of supply of materials or labor, as well as the desire of certain actors to “get more for less,” causing them to cut corners on the manufacture of component parts or skimp on the procurement of raw materials.
The question is, do you have the ability in all cases to verify that what you’re buying or getting from a far-flung factory is, in fact, what you ordered and what you need to ensure a safe, reliable product for your customer. There are real challenges across the board.
Drake: What role does each stakeholder – government, industry, consumer, etc. – play in countering the threats that are impacting global supply chains?
Lute: At some level, the consumer is bearing a fairly high proportion of the responsibility or the impact. On the one hand, consumers should demand safer, more reliable products and understand what goes into the composition of those products in order to hold manufacturers and other stakeholders accountable when standards fall short. Consumers also bear the consequences in terms of price, and they can be fickle; consumers want inexpensive products that are still of high quality and that operate safely.
Drake: Can you provide a couple examples of what you mean?
Lute: The market can be an imperfect mechanism for creating a secure supply chain. The question we should ask ourselves is: are there gaps where the government should engage?
For example – seatbelts were not always a required feature on cars. It took roughly 50 years from the time seatbelts were introduced for automobiles in the U. S. until they became mandated by law. Today, none of us would even think of purchasing a car that did not have seatbelts. Consumers have demonstrated consistent demand for increased safety and manufacturers have demonstrated their ability to provide increased safety with profitability.
This is not happening in computers and IT systems. We all rely on the internet and IT on a daily basis, yet manufacturers consistently sell us machines that are unsafe to operate in today’s cyber landscape, forcing individual consumers to figure out appropriate configurations, security settings, and additional tools to minimize their vulnerability and exposure. The cybersecurity industry and computer manufacturers have failed to protect us and have left consumers to bear all the risk.
Drake: Let’s talk about one of the key themes of this year's supply chain summit, Global Supply Chain: Future Trends. What are emerging opportunities to lower cost, speed the flow of goods through borders, and proactively improve the functioning of global supply chains?
Lute: This is where SICPA is spending a lot of time and attention, both in terms of high-quality material markings that are counterfeit resistant, and also having the digital record of the manufactured goods or raw material to clearly indicate if the item you are holding is what you think it is. How can we prove this when things are moving globally at high speed and high volume? One approach is to build integrity into the supply chain through easily recognizable and accessible markings and tracking capability. The costs associated with building authentication and traceability programs are offset by the increased reliability and confidence that manufacturers, logistics providers, government officials, and consumers will have in the supply chain.
Drake: You previously served as the deputy secretary for the Department of Homeland Security. What are the most significant challenges facing decision makers at DHS at this time?
Lute: DHS’ role and function is to ensure a safe and resilient place for the American way of life to thrive, and it has to do several things very well. It has to prevent terrorist attacks similar to 9/11, it has to ensure border security, it has to build national resilience, and ensure cybersecurity for our critical infrastructure. That’s an easy list to rattle off, but it takes nearly half a million men and women.
There is a tension in the Homeland Security mission – and let’s just take the question of trade and supply chain and the movement of people and goods around the world. On the one hand, the border mission says we must keep out people and things that might be dangerous, but at the same time, what we have to do is expedite legitimate trade and travel because the vibrancy of the U.S. economy demands it. It’s who we are as a people and as a country.
The Department has always had turnover, but the men and women who are working in Homeland Security every day know their jobs, and they do them with purpose and pride.
To engage in more insightful supply chain conversations such as this one, business leaders, members of congress, policy makers, investors, innovators, and other experts will be at the U.S. Chamber of Commerce’s 7th annual global supply chain summit, Global Supply Chain: Future Trends in Washington, D.C. on May 16.