Tariffs, Technology Top of Mind for Supply Chain Leaders

Tariffs, Technology Top of Mind for Supply Chain Leaders

Oct. 23, 2019
Renegotiating part supply deals, essentially passing cost increases to their suppliers, is one way that manufacturing supply chain executives are addressing tariff concerns.

Supply chain leaders have a lot on their plate these days.

A recent survey, “2109 Cognitive Sourcing Study”, released by LavaData, a company that delivers applied AI,  asked more than  200 senior procurement and supply chain leaders at global manufacturing firms about a variety of issues including technologies and tariffs.

In the tariff department, 89%, are concerned that tariffs will cause production costs to increase over the next year. The top five U.S. industries they expect to be hardest hit are industrial manufacturing, consumer goods, automotive, technology, and telecommunications.

Respondents noted a range of tactics they’re likely to take to reduce the impact of the expected cost increases:

  • 45% hope to find savings by making their production process more efficient.
  • A majority (54%) acknowledge they’ll have to pass these costs on to consumers.
  • 43% plan to renegotiate part supply deals, essentially passing cost increases to their suppliers.

As manufacturers consider restructuring their supply chains in the wake of tariffs and global uncertainty, they cited U.S. cities with a high cost of living that they’ll seek to replace or avoid — New York (32%), Los Angeles (15%) and Miami (9%) in particular. Hong Kong (15%) and Shanghai (9%) were the two Chinese cities in the top five that manufacturers plan to move away from.

And, while respondents think the tariffs will be more harmful to North America than China in the near term, a majority believe the U.S. (45%) and Canada (26%) will benefit in the long term.

Turning to technology, a surprising number of manufacturing organizations still rely on outmoded analog processes, but there is increasing movement toward advanced technology solutions:

  • A majority (58%) of respondents say their supply management sources are still managed by individual commodity managers, but 50% have at least some sort of central system for storing supplier insights and spend data.
  • 50% still rely on Excel spreadsheets or data warehouses with limited tracking of market intelligence. However, this figure is down steeply from 2018 (61%). 
  • 44% of the respondents do not use a cost management tool for NPI. 

While only 8% report using a purpose-built sourcing platform in 2019, this signaled significant AI adoption compared to 2018 (5%).

“This year’s survey shows that a surprisingly high number of enterprise NPI and sourcing teams are still using the same analog systems and processes that they have been using for more than 20 years: individual category managers with spreadsheets. The lack of centrally located data alone exposes these companies to significant risk,” explained Rajesh Kalidindi, founder and CEO of LevaData. “Meanwhile, a small but growing number of companies are adopting transformative technologies that will allow them to strategically consider millions of data points affecting the supply chain. These companies are able to significantly outmaneuver competitors.”

Organizations Limited by Narrow View of Strategic Sourcing Success

But manufacturing organizations aren’t just limited by analog processes. There is also a pervasive failure to think about strategic sourcing on a larger scale. 

Although there’s a clear opportunity for strategic sourcing to improve a company’s speed and agility, only 5% of respondents cited “building a competitive advantage” as a key measure of strategic sourcing success. The majority (68%) were focused on cost- cutting. 

Additionally, strategic sourcing, procurement and NPI teams continue to be handicapped by the amount of time they spend “fighting fires”: 46% of respondents say at least a quarter of their time is spent on these tasks. “Compare this to best-in-class companies, which we’ve found spend less than 15% of their time this way,” Kalidindi added.

Finally, despite the fact that most respondents (60%) view their procurement teams as “excellent” partners, they may be considering them from a traditional perspective. Confidence in this team to handle digital transformation continues to decline; in 2017, 52% of respondents felt this team was “somewhat or very ready” for digital transformation, but this figure declined to 46% in 2018 and to 40% in 2019.