Latin America’s history of pervasive economic and physical trade barriers has proven a significant impediment to the integration of multinationals’ regional supply chains. Tariff and non-tariff trade barriers, complicated and inconsistent tax rules, and the nearly-impenetrable Amazon Basin and Andes Mountains have forced many companies to take an ad hoc approach to supply chain development in Latin America.
This ad hoc approach has meant that supply chains in Latin America are often a fragmented and inefficient drag on bottom-line performance, rather than the streamlined competitive advantage they can be in developed markets. Indeed, according to a report by JDA Software Group, longer lead times and less flexible supply chains means that days inventory outstanding for manufacturers averages 133% higher in Latin America than in the US, while days inventory outstanding for retailers averages 77% higher.
Despite these impediments to supply chain integration, growing corporate pressure to improve bottom-line performance, coupled with the threat posed by increasingly sophisticated local competitors, is causing some savvy LATAM executives to take a second look at opportunities to improve supply chain performance. Supporting this trend are emerging regional supply chain enablers like the recently-enacted Pacific Alliance agreement, growing government investment in transportation infrastructure, and the deepening presence of world-class third-party logistics providers.
Major companies taking advantage of these enablers include Diageo and Proctor & Gamble, both of which recently announced investments aimed at consolidating their Latin America supply chains. Companies that are able to differentiate themselves by cutting costs and improving customer service through supply chain integration will find themselves better positioned to navigate growing competitive threats as Latin America enters a phase of stronger macroeconomic headwinds.