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Trade War Woes

Posted By Ron Sidman, Monday, August 6, 2018
The current trade dispute between the US and China is just another reminder that juvenile product manufacturers need to continue to be alert and nimble to cope with an ever-changing environment.

Your supply chain is the bloodstream of your company and any interruption or complication can put your business in jeopardy quickly. It’s tough enough having to deal with today’s distribution channel challenges, safety regulation, and competitive pressures. The last thing the JP industry needs is another thing to worry about. But here we are in the midst of a battle of economic titans that has injected a level of uncertainty into both cost and continuity of product supply.

 

It was different when I started in business in the seventies. Baby product importers were able to buy from multiple countries. A typical Asian buying trip for me included Japan, South Korea, Taiwan, and Hong Kong. If one country was a problem at any point in time, there were alternative sources elsewhere. But gradually labor costs in all those countries increased and China became virtually the only source for most of our labor-intensive products.

 

Meanwhile duties on most imported juvenile products have declined over the years. As JPMA’s general counsel Rick Locker pointed out in his recent JPMA webinar, countries have generally agreed that there’s a benefit to keeping tariffs on goods for children low. Currently duties for most JP products are very low or zero. But this may be about to change for products imported from China if the US goes through with its threats.

 

It’s in situations like this that the rationale for having a JPMA comes into focus. And as usual the association is responding quickly to this potential threat. If you’ve stayed up to date you know that JPMA is making industry concerns known to the appropriate government entities and is arguing persuasively that children’s products should be excluded from tariff increases. At the same time, it is doing a great job of keeping members up to date on what’s transpiring.

 

I think most observers feel that some kind of mutually face-saving resolution of this dispute will occur before long. It’s just not in either side’s interest to prolong a fight that will clearly harm both sides. But, leaving aside the issue of whether tariff threats are the best tactic to use to provoke change, the lack of a level playing field is real and ought to be addressed. And it’s highly likely if not inevitable that any progress in resolving trade differences between the US and China will be slow in coming leaving the possibility of a rocky road ahead for many years.

 

So, what if anything should you be doing in response to these geopolitical machinations? There’s no need to panic but it might be wise to take the opportunity to do a “failure modes and effects analysis” on your supply system—and not just products made in China.

 

This is something you should be doing anyway at least once a year as part of your overall planning and management process. But let the current China situation serve as a wakeup call to spur a more aggressive consideration of all possible threats to cost and supply continuity and possible ways to minimize the likelihood of occurrence or the negative effects if they do occur. Here are some ideas to consider:

 

  • Make sure you are comparing apples to apples in your product costing by including indirect costs such as the added inventory carrying cost for longer lead time foreign sources and the “cost of quality.” You may find that costs for some imported products are not as inexpensive as they seem.
  • Study whether for at least some of your products, consumers would be willing to pay a sufficient enough premium for the product to be produced in the US.
  • For critical large volume products, consider dual sourcing in both Asia and US/Canada keeping the dominant share in Asia but having the capability to shift if necessary.
  • Review whether automation advancements may now allow some currently imported products to be feasibly produced in the US or Canada.
  • Monitor the sourcing strategies of larger companies in other categories who are making products similarly constructed to yours. You may find they are successfully producing in countries other than China.

  • Even within China, make sure you have some kind of ongoing process for cost comparisons between alternative suppliers.

  • As your order sizes increase, make sure you are routinely renegotiating production costs based on the higher volumes.
     
  • Make sure someone in your company is periodically physically inspecting both domestic and foreign factories looking for potential issues that could interrupt supply. 

 

As always, if you’d like more information or assistance from me regarding your unique challenges or you just want someone to brainstorm, vent, or commiserate with, consider taking advantage of JPMA’s Executive Mentor Program by scheduling a Skype or Face Time with me. I’d enjoy meeting you and helping you any way I can. Check the JPMA web site for more information or contact Reta Feldman at rfeldman@jpma.org.

 

Ron Sidman was the founder and CEO of The First Years, Inc. and former Vice Chairman of the JPMA Board of Directors. He is currently a  business consulting resource for JPMA members and serves on the Advisory Boards of both the Institute for Entrepreneurship and the Dean of the College of Education at Florida Gulf Coast University. Ron is also the President of Evolutionary Success, LLC, a life and business coaching company. He can be contacted at ron@evolutionarysuccess.com.

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