The US-China trade war is setting an unprecedented future for the retail industry. Already reeling from an economic slowdown, the trade and tariff wars is having a rippling effect on this sector. The only casualties in this retail trade tug-of-war are the consumers and overall economy on both sides of the line. Any further increase in tariffs will see price increase across all products in the retail sector.
The United States has further toughened their stand, by increasing a 10% tariff on the remaining $300 billion of Chinese products effective after September 1st. This is in addition to the $250 billion worth of items that have already been tariffed at 25%.
The unintended side effect of this tit-for-tat trade war is the massive store closures. According to Coresight Research, the store closures in 2019 were 7,062 as against 3,017 store openings. The job loss impact is another factor for the retail industry to note of.
Even the 117 year old department store like JCPenney has closed around 27 stores this year with more to come in 2020. Some of the other stores like Lowe’s, Walmart, Kohl’s, Target, and Nordstrom are also facing the trade wars effect.
Global trade war disrupting supply chain
The global trade war is not likely to end. The immediate effect for the retailers is to have a relook at their overall retail strategies. With a majority of their retail and manufacturing products sourced from China, retailers now have to worry about the new tariffs and its associated problems. One of the most affected aspect is their supply chain management.
One possible scenarios for retailers in view of the escalating trade war is increasing prices and procuring raw materials. Retailers are inclined to pass on some of this price increase to shoppers. Adding more pressure is the escalating procurement costs, lost business contracts and severed partnerships forcing them to relocate to feasible countries. A practical solution for retailers is to move production out of China for other cheaper Southeast Asia areas like India, Vietnam, Malaysia, Philippines etc.
Global procurement operations are now shifting away from China-reliant suppliers. The feasibility of this move involves a necessary study on the economic, financial, political and social impact on the brands position.
Alternatively supply chain vendors and firms have resorted to binge buying and stockpiling the products from China in order to avoid higher tariffs. This has already driven up transportation and warehousing costs. Adding additional retail stocks ends with them paying more for storage resulting in a supply chain problem.
New technologies to retailers rescue
Digital technologies are needed to provide long term solutions to the retailers supply chain problems. Artificial intelligence, machine learning and predictive analysis allow companies to manage their resources efficiently.
Technologies like digital twin help predict events accurately through insights in real time which allows them to monitor their supply chain for risk and opportunities.
The basis of this approach is the supply chain strategy comprised of rules that refine costs or pass it onto the customers. The digital twin leverages ML to analyze the immense supply chain data and metrics to run through possible scenarios that allow predictive outcomes. The scenarios allow retailers to understand the effect of tariffs on the cost, services, risks and decisions taken in the current market conditions.
As a strategic measure, the digital twin scenarios help guide both the short and long term implementation goals. They allow the supply chain groups to plan for the unpredictable events resulting from the potential tariff increase.
For example, what’s the correct inventory that should be imported from China to the US, the risk and the mitigation steps involved in this task? Successful implementation of their digital twin will help in setting up alternate routes and suppliers, minimize and anticipate disruption of their supply chain.
Data insights are a valuable asset for organizations that allow for a data driven decision making process. It permits them to align their company strategies on the basis of insights obtained from the multitude of data sets and its easy availability. The proactive approach allows for a centralized, collaborative and connected ecosystem with an improved information flow.
The digital linkage across the integrated sales, production and delivery processes lets them apply integrated lean logistics to eliminate waste, errors and defects, minimize lead time, and materials impacted by tariffs. It enables on-the-fly deployment decisions with new logistics models.
Organizations are invested in an outcome based result to leverage their digital tools and technologies to limit the downstream effect of the increasing pressure on tariffs, across the supply chain.
The future of supply chain is cognitive that runs in real-time, is interconnected, adaptive and intelligent enough to help retailers react faster in the event further tariffs are applied. Improved insights and performance; increased visibility and transparency; cost reduction and risk mitigation are the potential benefits of a cognitive supply chain.
Having a cognitive supply chain is crucial as the US-China trade wars wage on. The global trade war is the right catalyst to drive retail brands to look towards AI and automation to mitigate any risks in the future.