Brace for a Wave of Change in 2019: Procurement & Supply Chain Challenges

As heated debates on everything from minimum wage to tariffs to state-sponsored cyber attacks continue in public and political spheres, midterm elections in the U.S. fast approach. Combined with rapidly emerging technology paradigms, labor issues, and the rising frequency and intensity of natural disasters, these factors create myriad challenges for procurement teams, manufacturers, and suppliers. As we dive into this maelstrom of change in an effort to prepare for the year ahead, it is helpful to pick out some major trends that electronics manufacturers should incorporate into their strategic planning.

Image courtesy: Pixabay

The overarching theme is this: focus on optimizing procurement processes, product and service introductions, data management and analytics, and supply chain management. These are the steps needed to prepare  to absorb the impact of both emerging paradigms and unpredictable events.

Balance speed & agility in bringing products to market

It’s increasingly important to maximize profit margins at the time of product launch.  Especially given the impact of government maneuvers in the ongoing trade war, you need to create wiggle room for disruptive events by maximizing gross margin from the outset. If you can bring your new products to market that way, you’re more prepared to absorb the impact of tariffs. There is some evidence that the current U.S. administration will hold off on further tariff announcements until after the midterms. Many companies may find that maximizing margins isn’t enough; you can still take responsive measures like switching suppliers, or looking for domestic sources. However, it’s imperative to be in the best possible position from the outset so you can more easily adapt to surprises. 

Companies often move with urgency to get to market first or in time to capitalize on an opportunity. This may mean that taking time to find a lower-cost or more agile supplier is not in the plans. This often leads to making a conscious decision to go with what the suppliers you know and have on board already, even if it means sacrificing margin. We see that involving procurement and supply chain stakeholders earlier in the new product introduction (NPI) process (beginning with concept and design) can result in smarter decisions and better options around direct materials and suppliers. Given the state of procurement technology and analytics, you shouldn’t have to compromise margins to preserve speed-to-market. Optimizing procurement capabilities is a shock absorber against tariffs and other unforeseen circumstances.

The pace of new product launches shows no signs of slowing. Product lifecycles are shorter, at the same time that products are becoming more complex with the additional embedded sensors, electronic, and transmitter components. In other words, the emerging IoT paradigm is driving profound changes to the product lifecycle and infusion of technology. Procurement processes, especially around direct materials and supply chain collaboration, should incorporate this into their NPI strategy going forward. 

Unprecedented focus on supplier risk

It’s not surprising that experts and analysts have been emphasizing the importance of supply chain visibility in the risk management context. It’s imperative for all the reasons mentioned above — technology infusion, IoT connectivity, tariffs, natural disasters, and geopolitical unrest — but also for factors related to reputation risk.  Social media and consumer reviews quickly surface every flaw in the product, but also many problematic aspects of how the product is made and distributed.

Even sabotage should be on your radar — recent reporting about tiny spy chips found on Supermicro servers has sent shock waves through top U.S. companies and federal agencies. Similar security and reputational risk also arises due to the inherent vulnerability to cyber attacks introduced by IoT and other connected components. This is especially true for products that collect or process personal information, medical devices, transportation-related products, food-and-beverage and products intended for children. If you are doing rapid NPI, these risks must be accounted for, and a security by design approach comes into play. Identifying and integrating the necessary supplier expertise early in the process is especially critical for companies new to embedded technology components. There are concrete, immediate upsides to better risk practices as well — supply chain insurance is easier to obtain and afford, regulatory compliance is eased, and competitive stance is strengthened in contract negotiations with highly regulated customers and partners (e.g., healthcare providers).