Companies that strategically reassess their sourcing strategies in light of the evolving political climate will likely find themselves significantly ahead of their competitors, according to Neil Lustig.
As the US elections progress, automakers are anxiously awaiting the implications for tariffs on essential automotive imports from China, including semiconductors and batteries. While the presidential candidates have varying perspectives on tariffs, they both agree on the need for a tough stance on China. Furthermore, candidates may propose additional tariffs on other manufacturing countries as they strive to create a more equitable environment for US manufacturers, aiming to boost domestic growth and job creation.
Regardless of the election outcome, it’s evident that auto manufacturers will face increased supply chain costs. They will experience mounting pressure to manage these cost increases effectively, rather than simply passing them onto consumers. Ultimately, prices will rise. However, those companies that proactively plan and rethink their sourcing strategies within the new political context will gain a significant competitive edge. So, what proactive measures can auto manufacturers implement to prepare for this major market shift?
People, processes, and technology
Uncertainty naturally brings risks. Supply chain leaders need to recognize these risks and take meaningful steps to mitigate their impact. This process relies on three fundamental pillars of any business: people, processes, and technology.
Supply chain leaders should evaluate whether their teams possess the necessary experience to confront these risks, whether they have established processes for systematically assessing and alleviating these risks, and whether they have appropriate technology to support risk assessment. Given the complexities of the supply chain, there are no quick fixes. Supply chain leaders must understand that adapting to changing tariff policies will require sustained effort.
When considering their teams, leaders should reflect on three critical questions:
- Does the team have the necessary experience?
- Is the team equipped with the skills and mindset to implement rapid changes?
- Can the team handle the demands of this task?
Once leaders are confident in their personnel, they should shift their focus to processes—beginning with identifying alternative supplier regions to strengthen the network.
Building a strong supplier network
Creating a robust and diverse supplier network is vital for mitigating supply chain disruptions. Several key factors must be considered in this endeavor.
The primary focus should be on diversification to minimize dependence on a single supplier. By expanding geographically, manufacturers can lower the risks associated with localized disruptions by sourcing materials from various regions. Regular audits of suppliers and partnerships can help assess their capacity, ensuring reliability, scalability, and responsiveness during a crisis. Moreover, implementing strategic inventory management practices can help maintain reserves of critical supplies, acting as a buffer against unexpected shortages.
For instance, during the 2024 Olympics in Paris, and throughout previous Olympic events, organizers faced significant disruptions due to over-reliance on specific suppliers. Companies can learn from these experiences by applying proven strategies such as supplier diversification and demand forecasting to bolster their supply chain resilience.
Compliance should also remain a priority. Many alternative sourcing regions come with their own challenges, potentially increasing the risk of non-compliance with US or EU regulations. Supply chain leaders must avoid swapping one set of regulatory issues for another. This necessitates thorough research into potential new suppliers and the examination of any hurdles they may present for manufacturing processes. Regardless of the suppliers considered, new logistics challenges or arrangements will likely emerge. However, with the right focus and effort, supply and procurement teams can successfully navigate these challenges and secure reliable suppliers.
The political landscape and tariffs are constantly shifting, making this a complex issue. For supply chain teams new to these dynamics, seeking expert guidance on the regions in question can be invaluable. No one wants to be left scrambling at the last minute when others are unprepared. Anticipating potential problems and taking measures early on to alleviate them will ultimately determine success in the years to come. The role of technology, especially AI and machine learning (ML), in forecasting challenges and generating actionable insights cannot be underestimated. By analyzing large data sets from various sources, AI and ML can help organizations not only anticipate disruptions but also detect trends that may influence supply chain operations. This proactive stance allows businesses to make more informed decisions and optimize their strategies ahead of time.
Utilizing AI and ML
In today’s fast-evolving political landscape, real-time insights and predictive analytics are essential for preserving cost-efficient supply chains and timely deliveries. Automakers can leverage the burgeoning capabilities of AI and ML across several critical areas, including supply chain monitoring, demand forecasting, and cost-saving identification.
Supply chain monitoring takes precedence. While AI isn’t capable of forecasting unpredictable black swan events, AI tools continually monitor market conditions and supplier performances, offering alerts about potential disruptions. If a supplier encounters delays due to geopolitical factors or tariff changes, AI can notify automakers in advance, allowing them to pivot and find alternative supply sources before production is affected.
The influence of the US elections on automotive manufacturers and their supply chain expenses is significant
Tesla serves as a noteworthy example of how to swiftly tackle dynamic supply chain challenges. The company recognized early on the scarcity of battery materials amid the electric vehicle (EV) transition and moved quickly to acquire critical raw materials before competitors had even realized the impending shortage. While not every company possesses the same resources as Tesla, the crucial takeaway is to address potential issues before they escalate into crises.
AI can also rapidly process historical data and current market trends, enabling manufacturers to anticipate demand fluctuations and adjust procurement strategies accordingly. For instance, if there’s an anticipated rise in EV demand due to new sustainability incentives, manufacturers will have sufficient time to increase production and secure components, thereby preventing shortages and maximizing revenue.
Furthermore, AI and ML algorithms can assist automotive manufacturers in mitigating anticipated cost inflations. Semi-autonomous applications can foster more effective competition across expenditures, identify cost-saving opportunities throughout the supply chain, detect inefficiencies in purchasing habits, and optimize shipping logistics. They will prove immensely beneficial in managing rising tariff costs and maintaining competitive pricing.
The impact of the US elections on automotive manufacturers and their supply chain expenditures is profound. The time to act is now. Supply chain leaders who neglect to take proactive measures to prepare for these challenges risk facing inflated costs, extended procurement timelines, and ultimately falling behind their rivals. It is crucial to implement decisive and forward-thinking strategies such as evaluating team capabilities, cultivating a robust supplier network, and harnessing AI and machine learning technologies. These strategies are essential for successfully navigating the intricate global trade landscape that lies ahead.
About the author: Neil Lustig is the Chief Executive of Arkestro
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