CSG1 - 27/01/25

Supply Chain Overview

• Client Dependency:

  • Heavy reliance on a single client can create vulnerability.

  • Example: If one client purchases 33% of production, a disruption in that relationship poses significant risk.

  • Common Sense Approach: More diversified clients reduce risk.

• Bilateral Relationships:

  • Cooperation is key; mutual buying and selling promotes stability.

  • Disparity in economic reliance can create imbalances.

    • For instance, if Country A sells 33.5% of its exports to Country B, but only buys 1% of Country B's economy, Country A is at a disadvantage.

Economic Impact of Tariffs

• Immediate Consequences of Tariffs:

  • An imposition of 25% tariffs can lead to drastic price increases in products like flowers ahead of Valentine's Day, affecting consumer prices immediately.

  • Timeliness of events matters; essential seasons like Super Bowl can also be impacted.

• Sector Importance:

  • The agro-industry is vital; it produces key exports like avocados and bananas.

  • Policy decisions can have major implications for agricultural exports and market stability.

Geopolitical Tensions and Economic Consequences

• Global Power Dynamics:

  • Control over regions can influence global trade routes, impacting countries like Colombia.

  • Regions under conflict (e.g., Gaza, Sudan) affect trade logistics, leading to higher costs and inefficiencies.

• Baltic Area Dynamics:

  • Russia's control over certain areas allows them strategic advantages, influencing the Black Sea entry points.

Trade Deficits

• Colombian Trade Position:

  • Colombia often operates at a trade deficit, where imports exceed exports.

  • Countries highly dependent on imports face challenges in balancing their trade accounts (e.g., many Caribbean islands).

• Economic Health and Resource Dependency:

  • Colombia relies on exporting natural resources (oil, gas) for economic viability.

  • Economic decisions made locally must consider the balance of resource exploitation versus environmental sustainability.

International Trade Mechanisms

• Import Dependency:

  • Countries like Colombia are significantly affected by global oil prices, interest rates, and the availability of US dollars.

  • Price Sensitivity of Oil:

    • Fluctuating oil prices directly correlate with the country’s economic health and exchange rates.

• Understanding Supply Chain Variables:

  • Economic indicators like oil prices and interest rates play a crucial role in supply chain decisions.

  • Track shifts in prices to inform procurement strategy.

Logistics and Freight Costs

• Freight Rate Variations:

  • Significant increases in freight costs from 2020 during pandemic restrictions led to strain on logistics.

  • Freight rates can fluctuate dramatically based on demand and geopolitical events.

• Case Study - Container Freight:

  • A freight container’s cost surged from $2,000 to $12,000, drastically raising import costs and impacting pricing strategies for businesses relying on international trade.

Procurement and Supplier Management

• Procurement Definition:

  • Involves goods/services acquisition, including demand preparation, process execution, and payment approval.

  • Requires understanding supplier capabilities and generating accurate demand forecasts.

• Supplier Analysis:

  • Assessing potential suppliers based on quality, proximity, price, and trade agreements is essential for effective procurement.

  • Value analysis helps in determining the best product fit considering market demands.

Challenges in International Purchasing

• Negotiation Dynamics:

  • International suppliers may not easily provide credit and often require advance payments, complicating financial logistics.

  • Ensure due diligence when reviewing pro forma invoices to avoid costly contractual mistakes.

• Market Timing:

  • Understanding market timing is essential for maximizing procurement efficiency and cost-effectiveness.

  • Awareness of seasonal pricing trends is critical for procurement strategy.