California Manufacturers & Technology Association - 2019 Guide - 22
The Cost of Supply Chain
by Hannah Kain, ALOM President and CEO
fizer and GlaxoSmithKline both estimate that
just the compliance cost for managing the
Brexit situation will be around $100 million per
company. Similarly, supply chain professionals
feel the crush of increasing global compliance cost. Many
companies spent the first half of the year focused on
privacy regulation, driven by European GDPR regulations.
As that settled down, the business world got rattled by
the tariff wars and uncertainty about trade agreements.
Supply chain professionals are now focused on mitigating
product cost impact, which can be up to 25%, enough to
cause a slow-down or even cessation of customer orders.
Uncertainty around regulations has always been
a business issue. However, with increased globalization
of the supply chain, businesses are impacted by infinitely
more regulations. With each country, state and municipality regulating aspects of the supply chain, businesses
must understand the local requirements in order to audit
the compliance of local suppliers and channel partners.
Many regulations impact the entire supply chain from raw
materials to the smallest supplier. Add cybersecurity risk
and audits, and the cost of adding and auditing suppliers
spirals and becomes prohibitive. This has caused corporations to be very conservative in adding new suppliers. In
turn, the risk is stifling innovation in the supply chain and
eliminating smaller and more nimble potential suppliers.
The compliance cost also impacts customers.
For instance, regulatory compliance cost increased 60%
for financial institutions in the eight years following the
financial crisis. This caused banks to turn away certain
customers and be very selective in their financing. It also
caused a longer decision making process. The impact has
been felt throughout the business community.
Local compliance is not enough. The products
or components must be transported, and transit requirements and especially border crossing requirements are
increasing. While many are hoping that blockchain will
facilitate some of the border crossing compliance filings,
we are still subject to semi-manual systems with limited
visibility and murky requirements.
The truly tricky compliance requirements stem
from the destination location regulating what happens in
the origin location of the finished goods or any of the components or any of the components or raw materials. A good
example is the U.S. Conflict Minerals regulations. Another
is the UK requirements to have a supply chain free of slave
labor. Both are noble and worthwhile causes; yet both pieces of regulation present real challenges in supply chains
that are increasingly complex to demonstrate compliance.
With the average compliance cost for manufacturers
hovering around $20,000 per employee, the impact is not trivial.
For many companies, the best
strategy is to join associations and
organizations that follow regulations and legislation closely. "
It is possible to get a leg up on the competition by
having employees stationed strategically for following regulatory affairs in each pertinent location. For many companies,
the best strategy is to join associations and organizations
that follow regulations and legislation closely. Sometimes,
the ability to stay ahead of the volatility can be a significant
competitive advantage. Understanding this, I am on the Board
of Directors for National Association of Manufacturers and
many of the ALOM staff members are on committees and following legislative affairs. We are also active in local and state
associations, and in international associations. The ability for
us to see further ahead and react sooner will save one of our
customers close to $2 million in avoided tariffs this fall.
Supply chain organizations must remain agile
and vigilant. It should be part of risk management to be
deliberate in choosing supply chain partners who understand compliance, follow the changes and can react fast.
To learn more about how ALOM supports
our customers' agility and compliance management
in supply chain, please see www.alom.com or e-mail
Table of Contents for the Digital Edition of California Manufacturers & Technology Association - 2019 Guide