Four Key Areas USMCA Impacts Supply Chains

Have you changed your supply chain strategy based on United States-Mexico-Canada trade Agreement (USMCA) that went into effect July 1st 2020?

The new U.S.-Mexico-Canada Agreement (USMCA) replaced the North American Free Trade Agreement, or NAFTA and went into effect on July 1, 2020. APICS Milwaukee serves supply chain professionals with the information needed to remain competitive in our ever-changing world. SupplyChainDive recently shared four key areas USMCA will impact supply chains summarized below.

1. Rules of origin introduce new level of complexity.

Changes to ROO requirements under the USMCA will impact shippers, particularly those in high-tech machinery or auto manufacturing, whose products contain hundreds of globally-sourced components.

"If you look at the USMCA auto rules and compare them to the NAFTA rules, the level of complexity that's been introduced by USMCA is significant," Gould said. "When in the past we had to track one or two factors in order to qualify a car for NAFTA, under the USMCA it's more like five or six different factors that we have to track all the way back through the supply chain. So it's one thing to know where an engine was built, but it's another thing to know where the steel was mined."

As the coronavirus outbreak stabilizes in some regions and spikes in others, procurement managers are working to build resilience in their operations through diversifying and regionalizing their supply chains. Doing so often involves onboarding additional suppliers and shifting geographies when a disruption (such as a factory shutdown due to a coronavirus outbreak) occurs. To do this effectively, investing in visibility tools that allow supply chain managers to quickly qualify, onboard and monitor suppliers remotely will be key throughout the pandemic and in the months ahead.

2. USMCA factors into reshoring decisions.

U.S. companies working through new rules of origin requirements under the USMCA will have to make decisions about whether nearshoring more operations to Canada or Mexico, or absorbing tariff costs from overseas suppliers is the better financial and/or logistical option.

For example, auto manufacturers must now certify that 75% of their steel and aluminum comes from Canada, Mexico or the U.S. to qualify for duty-free trade under the USMCA, up from 62.5% under NAFTA. In addition, there is a Labor Value Content (LVC) requirement, stipulating that a certain percentage of a finished vehicle is made by workers earning a minimum of $16 per hour.

Despite the initial hurdles that may come with the agreement’s implementation, nearshoring to Mexico remains top-of-mind for a lot of shippers looking to diversify amid ongoing trade tensions with China.

3. Reducing barriers for cross-border shipments.

Businesses sending goods to the Canadian and Mexican markets stand to benefit from changes to de minimis rates and customs paperwork.Under the USMCA, Canada will raise de minimis levels from 20 Canadian dollars ($15.29) to 40 Canadian dollars ($30.59) and provide duty-free shipments for items valued up to 150 Canadian dollars ($194.66). Mexico’s de minimis values will remain at $50 and provide duty free shipments up to the equivalent level of $117.

The new rates are designed to provide better access to the Canadian and Mexican market for American small and medium-sized enterprises (SMEs). These businesses "often lack resources to pay customs duties and taxes, and bear the increased compliance costs that low, trade-restrictive de minimis levels place on lower-value shipments, which SMEs often have due to their smaller trade volumes," according to a fact sheet from the Office of the U.S. Trade Representative.

Under NAFTA, and now the USMCA, shippers seeking to import products tariff-free from Canada or Mexico must fill out a certificate of origin.

4. The Sunset Clause brings added uncertainty.

Unlike NAFTA, which once enacted was intended to remain valid indefinitely or until a new agreement replaced it, the USMCA is designed to expire. The trade deal will come to an end 16 years from the date it entered into force on July 1, 2036, per its Sunset Clause.

In order for the deal to continue, six years from the USMCA’s entry into force, in 2026, the member countries must submit any changes or recommendations for the deal to a "joint review." If all parties can agree on the submitted proposals and confirm in writing that they wish to renew the deal, it will be extended for another 16 years. Joint reviews take place every six years that the deal remains in place.

If one of the member states does not agree to remain in the USMCA during a given review, then the joint review process will take place annually until the 16 year term has expired. "Companies will need to think carefully of how they may need to restructure their supply chains keeping the sunset clause in mind." Tim Yu. Supply chain risk intelligence analyst, Resilience360.

Earlier this year, Wisconsin Manufacturers & Commerce (WMC) President and CEO Kurt Bauer shared, “This (USMCA) trade deal will grow Wisconsin’s economy, provide greater opportunity for Wisconsin manufacturers and farmers, and help expand the Badger State’s reach throughout North America.”

WMC went on to state that Wisconsin’s economy relies on trade, and the USMCA will ensure the state’s economic relationship with Mexico and Canada continues to grow. Key Facts About USMCA’s Impact on Wisconsin:

  • Wisconsin exports nearly $11 billion to Canada and Mexico, and the state has a trade surplus with both countries

  • More than 231,000 Wisconsin jobs are tied to trade with Canada and Mexico

  • More than 44,000 manufacturing jobs are tied to trade with Canada and Mexico

  • One out of every four manufacturers in Wisconsin rely on North American trade

  • About half of Wisconsin’s $3.5 billion in agriculture exports – especially dairy – are exported to Canada and Mexico

APICS Milwaukee is the premier professional association for supply chain management, helping over 160 Milwaukee area companies represented by our members, with educational and networking opportunities.   

We look forward to helping you have the tools to effectively manage your supply chain. Want to learn more? Join us in July for a Supply Chain Workshop and starting in September we will be offering APICS globally recognized supply chain certification instructor-led courses for CPIM, CSCP and CLTD. Join us on August 20th to learn more about THE VALUE OF APICS MEMBERSHIP AND EDUCATION: INFORMATIONAL WEBINAR!

For additional information, contact us via our website at: http://apicsmilw.org or via email at: [email protected]

Managing Quality at Suppliers

Did your company shift to produce critical medical supplies in support of the COVID-19 global pandemic?  Many manufacturers across the USA quickly pivoted to help out the community by producing needed PPE, hand sanitizer, ventilators and more.

While we were proud to watch so many companies step up and lend their facilities and expertise to fight the pandemic, assuring the quality of supplier products supporting life-saving medical devices and equipment became more important than ever. 

Manufacturing Business Technology recently shared supplier quality problems to watch for summarized below.

  1. Quality Degradation: If a supplier with a history of compliant shipments begins delivering shipments with rising scrap rates or nonconforming materials, components or parts, that is a red flag. Quality-related problems to watch for include a rise in failing parts per lot or an increase in rejecting products that don’t meet specification. Errors relating to specifications are among the most common challenges in managing supplier quality. For example, critical dimensions are missing, tolerances are off or specifications are outdated.
  2. Late Deliveries: Delays in shipments and responses to inquiries are also warning signs to watch for. An influx of late ship dates often indicates a failing manufacturing process may be affecting the supplier's quality.
  3. Slow communication:  When a normally responsive supplier is slow to respond about quality issues or ship dates, it can mean the supplier is avoiding the customer. If the quality problem is recurring and the supplier is failing to identify, correct and communicate the issue to the customer, then products get delayed and product quality is threatened.

The warning signs above certainly apply to medical supplies produced in support of the pandemic, where a slight reduction in quality could have huge impacts on patients.  They are also useful to consider helping maintain a quality supply chain as we look beyond COVID-19. Important to ensure you are working with reputable suppliers and keep watch on early indicators of quality implications.

At APICS Milwaukee, our mission is to ensure supply chain professionals have the needed information to succeed in our ever-changing world. Looking for more insights and tactics on how you can better manage your supply chain? We offer virtual Supply Chain Workshops and globally recognized supply chain certification courses taught by experts to provide you with the knowledge to help your company grow revenues and apply quality management approach to your suppliers.

APICS Milwaukee is the premier professional association for supply chain management, helping over 180 Milwaukee area companies represented by our members, with educational and networking opportunities.  Learn more about how we do this on our website at www.apicsmilw.org.

Just in Time or Just in Case?

Photo by chuttersnap on Unsplash 

Are you reconsidering a just in time approach to your supply chain with the recent impacts of the global pandemic?  Global production halts and disruptions have caused many supply chain professionals to consider moving to more of a “Just in Case” approach to help mitigate risks.

Per Industry Week, components of a “Just in Case” supply chain include simplification, collaboration, resilience, redundancy and innovation as summarized below.

Simplicity: Simplifying supply chains through production, outsourcing and number of suppliers. For example, Harley-Davidson recently announced their “Rewire Playbook” that will lower production volumes in reaction to reduced demand, while also eliminating models. By simplifying, they’re sharpening their focus on the products that matter most to clients. Outsource activities that aren’t core to your business. Reevaluate your suppliers and reduce to those most critical.

Collaboration: Prioritize partners who have skills, tools and knowledge that will enhance your company’s capabilities and minimize your risk. Suppliers who operate in multiple markets or who can flex up or down increase your company’s agility. Factor that value into all sourcing decisions.

Resilience: Consider producing closer to the selling market, holding a larger inventory of sensitive items or double sourcing key products. Build insights and visibility to change by eliminating layers between manufacturing and the final customer.

Redundancy: To protect your business from disruption and to combat price volatility, design – and put into action – a Plan B for each of your main supply chain providers.

Innovation: The risk of change goes way down in a crisis. If something’s not working today, there is little risk in trying something new. Many of the marketplace changes we’re experiencing now – the continued migration to e-commerce, the growth of new delivery services and working from home, to name a few – will probably remain with us. Think of ways your business can benefit from the changed environment. Speed company decision-making and try out something new to meet the changing circumstances.

At APICS Milwaukee, our mission is to ensure supply chain professionals have the needed information to succeed in our ever-changing world.

Looking for more insights and tactics on how you can better manage your supply chain? We offer virtual Supply Chain Workshops and globally recognized supply chain certification courses taught by experts to provide you with the knowledge to help your company grow revenues and reduce costs.

APICS Milwaukee is the premier professional association for supply chain management, helping over 180 Milwaukee area companies represented by our members, with educational and networking opportunities.  Learn more about how we do this on our website at www.apicsmilw.org.

Three Phases to Assessing Internal Supply Chains

Photo source: Image by jotoler from Pixabay

Has your company’s production been halted by the COVID-19 pandemic? Per the National Association for Manufacturers 2020 Q2 survey, respondents were asked about the specific ways that COVID-19 impacted their businesses and 59% said their supply chains were disrupted and 49% said they experienced unplanned production stops.

Manufacturers that have weathered the global pandemic the best previously invested resources to ensure their supply chains were efficient and productive. As we see most manufacturers returning and reopening production, it’s still important to review internal supply chains as supply chain strategies potentially shift through reshoring and more local to local buying. 

At APICS Milwaukee our mission is to serve supply chain professionals at all stages of their careers. We know ensuring your supply chain is efficient and productive requires constant evaluation and action. We suggest the below three phases to assessing your internal supply chain.

  1. Information Management: To assess your supply chain, it’s important to ensure your team understands and has the information supporting the fundamental concepts of supply chain management. Next, it’s imperative to access to an accurate and effective information database to help identify opportunities for improvements and measure success.
  2. Operations Management: Once you have a common understanding of supply chain components and quality data, the team should examine and assess the various elements of operations such as resource planning, materials planning, capacity planning, purchasing, shop floor control, product costing and continuous improvement efforts. 
  3. Business Management: In this final phase, executive management planning activities are addressed, which close the loop on the entire operation.  The topics covered are Business Planning, Marketing/Sales Planning, Manufacturing Planning and System Development.

One company that has had tremendous success evaluating their supply chains through the above steps is BASF. They leveraged APICS training to help educate employees at all levels and saw the following results:

  • Cost savings of approximately $60 million annually in internal logistics services

  • Order fulfillment cycle time reduced by 25 percent

  • Cost of goods sold reduced by 12 percent

  • Delivery accuracy increased 25 percent

  • Direct labor costs decreased 79 percent over 12 months

  • Return on supply chain fixed assets increased 62 percent over one year

Looking for more information on assessing your internal supply chain? Join us next week Tuesday (6/30) for a virtual Supply Chain Workshop taught by an expert APICS Instructor on the topic. This event is free for APICS Milwaukee members.

APICS Milwaukee is the premier professional association for supply chain management, helping over 180 Milwaukee area companies represented by our members, with educational and networking opportunities.  Learn more about how we do this on our website at www.apicsmilw.org.

How the CPIM Helps Improve Day-to-Day Operations

Today’s supply chains are more complex than ever before. This complexity arises from several factors, some that have existed throughout time and some that are unique to this era. From extreme weather to a global health crisis – today’s market is perpetually subject to volatility. This is only compounded by shifting consumer expectations and demands, with one-day delivery and personalized offers becoming the norm for many suppliers.

Technological advances make it easier for suppliers to satisfy this shifting demand but can also be challenging for those who struggle to keep up with the times. The key to success in this digital era? An understanding of the systems, methodologies, and concepts that are connected to on-demand order fulfillment, near-instant delivery, and increased demand.

A CPIM education provides a framework and tools for synchronizing, optimizing, and continuously improving an organization’s end-to-end supply chain. It is a key prerequisite to embarking on an enterprise resource planning (ERP) system implementation.

With a CPIM education, supply chain professionals master Lean, Six Sigma, Theory of Constraints, and project management concepts. They also study many components of the Manufacturing Planning and Control hierarchy of demand and supply planning and execution, all combined to provide enhanced visibility and control. CPIM stresses the value of a consistent use of terms, as defined by APICS, the global standard for the entire Supply Chain Body of Knowledge. The certification is a key to individual and enterprise success through excellence in supply chain management.

A better grasp of ERP systems

If run properly, ERP systems can generate major benefits and provide valuable insights for inventory management and production teams. The CPIM provides supply chain professionals with a greater understanding of ERP systems, enabling them to optimize their organization’s systems to reap maximum benefits.

Just take Jensen Precast for example. Previously operating under a decentralized ERP system, Jensen Precast struggled under the weight of siloed plant operations. This resulted in less-than-optimal processes and a lack of visibility across the organization. Jeff Friedman, chief operations officer at Jensen Precast says, “We made a commitment to our owners, employees, and customers to improve our business by adopting ASCM best practices and APICS education.”

Using their newfound knowledge, Jensen Precast employees identified constrained work centers in the production environment and calculated the ERP system to identify the limiting factors at play. Now, Jensen Precast enjoys a nearly 50% decrease in slow-moving inventory and a record rise in production and sales levels. Plus, employees can now use the ERP system to its full capacity with a renewed sense of visibility.

Strategies that improve visibility and control

While ERP systems help supply chain professionals optimize inventory management and production processes, many workers still need to adopt the right strategy for using the system to its full potential. One of these strategies is Kanban. As a tried and true pull system, Kanban has been a foundational practice many supply chain professionals have relied on throughout decades of changes in the industry.

Kanban optimizes production and inventory management cycles for efficiency and cost savings by ensuring an organization only has the supplies and resources on hand needed to fulfill an immediate task or order. Infused with a strategy known as just-in-time inventory, Kanban’s principles often rest on ordering what’s needed when it’s needed. That way, a company doesn’t hold safety stock and operates continuously at low inventory levels, ultimately lowering carrying costs and increasing efficiency. Kanban, and therefore the CPIM, equates to ROI.

Data-driven decision-making

Another tool in a CPIM student’s box is the ability to make data-driven decisions. The APICS body of knowledge equips individuals with the principles and models necessary to take a critical approach to data. Using this data, individuals determine value and improve processes, which is particularly crucial in an increasingly uncertain global landscape.

While some things will always be uncertain, one thing is for sure – inventory is determined by demand. One way to increase agility is to look critically at the factors determining inventory and production and find a way to anticipate them. “Demand” in-and-of-itself doesn’t tell us much. CPIM urges supply chain professionals to look closer. How many items will sell without promotional or seasonal surges and ebbs? How many units will sell with promotional discounts? In an era where e-commerce eclipses traditional commerce, how many returns can be expected?

All of these elements factor into an organization’s inventory management. CPIM won’t tell individuals what the number of returns will be or how many people will buy what they’re selling. CPIM can, however, equip individuals with the knowledge to determine how these factors are calculated and why it matters. Having this understanding makes it easier to approach day-to-day operations critically and forecast inventory management more accurately.

Revolutionizing the day-to-day

With the CPIM providing supply chain professionals with a better understanding of systems, methodologies, and concepts, day-to-day operations become no-brainers and efficiency becomes the norm. This rings particularly vital as the supply chain industry faces unprecedented levels of uncertainty and unforeseen changes each day. By returning to the foundational knowledge that stems from a CPIM education, individuals can not only face challenges head-on but redefine what a successful operation looks like.

Want to jump-start your CPIM certification process and start making a real impact in day-to-day operations? Get started today. Expert instructor-led CPIM classes start in the Milwaukee area in September! Learn more...