Supply chain executives have always had to factor in the impacts of geography and logistics, weather conditions, governments and regulation on their bottom-line marginal returns. In today’s landscape of economic uncertainty, cross-functional teams of supply chain, procurement, and finance will need to weigh these dynamics when evaluating current and future sourcing scenarios. In these choppy waters of economic volatility, procurement specialists—if armed with the right technology—will have a newfound ability to align and even influence internal stakeholders and C-suite executives with their strategic decision-making.
In the year ahead, procurement managers may require significant expertise in geopolitical risk to navigate the impact of international events on global supply chains. Historically, the U.S. has been a stabilizing influence, but recent announcements of proposed tariffs and revised multinational trade deals, coupled with constant adjustments, are making the operational calculus by supply chain professionals both more complex and constantly iterative. Supply planners will have to analyze and make recommendations to accommodate new rules.
Consider the impact on global supply chains of events taking place at the close of 2018. December was marked by the U.S. stock market’s roller-coaster ride, the Federal Reserve’s interest rate hike (with officials promising more in 2019), and a 90-day truce on retaliatory tariffs between the U.S. and China at the Buenos Aires G20 summit—immediately followed by politicians returning to dire pronouncements and trade war threats. Keep in mind that these gathering economic headwinds followed on the heels of the International Monetary Fund’s October (Q3) report and the Federal Reserve Board of Governors’ data citing a slowdown in the global economy in 2019. If that wasn’t enough to fill the dashboard of the savvy procurement officer with warnings, red alerts, and downward-trending arrows, there were numerous television appearances by CEOs in the fall predicting an economic recession by the end of 2019.
The importance of visibility
If recessionary conditions arrive, one should expect to hear the same shortsighted proposals frequently made during past economic contractions: to cut back capital investments and staffing of already lean procurement teams. Certainly, external pressure on supply and revenues will have a cascading effect. But the reach and effectiveness of digital sourcing systems have reached a tipping point. Organizations might have once had a five-to-seven-year window to integrate artificial intelligence (AI)-enabled sourcing in the enterprise for competitive advantage. However, the organization that today can effectively manage a higher percentage of its supplier spend, deploy greater visibility to uncover supply chain opportunities, and respond with rapid action to drive improvement in marginal spending will be the one most likely to emerge unscathed from 2019’s unusual level of market volatility.
Here are additional insights that will examine the intersection of technology and strategic thinking and how these trends will unfold across the enterprise:
Rewriting the global map
Products sourced from China’s factories and supply chain infrastructure comprise the largest percentage of U.S. manufacturing imports, followed by Canada, Mexico, Japan, and Germany. Early in the year, key changes in global trade to monitor include submission of the recently inked United States Mexico Canada Agreement (USMCA) to Congress for ratification in February. In March, the 90-day trade war truce between the U.S. and China expires, opening a window for imposing new tariffs on Chinese goods. And the ongoing concerns about the security of tech components made in China will bleed well into 2019. In addition, rising wages make China a less attractive region to manufacturers.