Key Takeaways

• A renewed focus on disciplined planning and analysis are required
• Reaffirm long-term strategies to reduce and eliminate risk
• Support your team with a steady hand, clear vision, and overcommunicate to all levels of the organization
• Engage with your suppliers in collaborative discussions to navigate risk together

Introduction

As concerns mount regarding U.S. trade policy, consumer sentiment, and related market reactions, many business leaders and their procurement teams find themselves awash in data that, on face value, provide little cohesive insight into how to adjust or adapt. Businesses cannot and should not ignore the potential impacts of the new global tariff structure and the possible impact of massive deregulation. However, caution and consistency remain central behaviors, even if everything screams for immediate action.  

In retirement investing strategy, two core concepts have prevailed for a long period of time and are applicable in procurement as well:

• Dollar Cost Averaging: Retirement advisors for decades have consistently told clients to embrace the concept of dollar cost averaging. This is at the center of retirement plan contributions that allocate a portion of each paycheck to investments. The premise being consistent savings of fixed amounts over time offers a lower average cost than depositing large amounts irregularly based on attempts to time the market.
• Set a Long-term Strategy: Do not attempt to time the market. Refine and revise your long-term strategy periodically to align with strategic goals, but do not abandon it due to market cycles and corrections. Why? Because reactive investing typically hurts your returns since the ability to predict the best time to buy and or sell is nearly impossible. No one has a perfect crystal ball.  

With no crystal balls available, procurement and business leaders cannot perfectly predict what will happen. Does this mean that organizations should not be cautious and/or take calculated, informed steps as risk and uncertainty grow? No. However, it is important to keep in mind what the long-term goals (3-5 years) are.  

Stop and ask yourself the following questions:

• What are the annual operating goals?  
• What risks impact these goals?  
• Has anything changed?  

Phasing in redesign, new suppliers, product specification changes, and more represents the best strategy to achieve real resilience.

Companies should not stay stuck in a perpetual crisis management cycle addressing disruption after disruption. Instead, as we’ll explore in this blog, supply chain resiliency can be achieved by moving beyond monitoring and mitigating individual risks to a holistic approach of analyzing insights and taking action to reduce and remove organizational risks.

Is Your Organization Panicking or Remaining Calm?

Let’s start with some general questions:  

• How is your organization reacting to the current turbulent business environment? How are your leaders reacting?  
• Which best describes the current sentiment: calm, methodical analysis, comprehensive scenario testing, and open communications with stakeholders internally and externally? Or chaos and reactive activities raising additional costs and inefficient allocation of resources?  
• Is the organization holding course with surgical-degree, purposeful modifications to circumvent the rough air? Or are teammates panicking, running for the nearest exit, and trampling down team members in the way?

The next set of questions will help assess the state of procurement within your organization:

• If you are assessing and monitoring risk, what have the numbers been telling you? If you had suppliers in poor financial health before, most likely they are still at risk, and the risk may accelerate. Were you acting on the information or just monitoring? What do the supplier scorecards (cost, quality, delivery, lead-times) tell you?
• Are you seeing trends? If your organization segments suppliers by NAICS codes or a category classification taxonomy, are you seeing trends in certain categories? For example, is the percentage of potentially risky suppliers growing and low risk suppliers reducing? Possibly the red alert category is holding steady, but the trend is changing.  
• Are you checking daily, hourly, or monthly and quarterly? Like the markets, monitoring on a daily basis, or even weekly, may be too often and lead to actions that are too reactive. Best practice would be to refine alerts for surgically targeted categories and/or suppliers' crises, plus monitor macro trends.

Sifting Through the Noise: Are Tariffs the Only Concerning Disruptors?

Over the past several weeks, tariff rates on a range of goods from multiple countries including Canada, Mexico, and the E.U. have been scheduled. These ranged from 10% to 50% on average, with some proposed tariffs retracted or given delays while others like aluminum and steel imposed in April. With such sweeping, across-the-board tariffs on nearly everything the U.S. imports, the picture is extremely uncertain.  

Given the dynamic between the U.S. and its trade partners, past strategies such as importing into Mexico or Canadian operations then temporarily importing into the U.S. for operations before returning to the original port of entry and shipping out may not be an option.  

While tariffs enjoy the greatest media focus and are front stage for many, however, they are but one of a myriad of risk factors and disruptions businesses must continue to address. Geopolitical challenges abound, while labor and capacity issues, cybersecurity risk, and non-tariff-based inflation remain. Environmental, climate, regulatory risks still remain that must be assessed, addressed, mitigated, and either reduced or designed out.  

With or Without Tariffs, the Long-Term Play Remains  

Knowing that, despite tariffs, core challenges remain unchanged, getting actionable information continues to be the priority. Proactively pursuing actionable information separates those that react from those that develop robust strategies to address near-term, mid-term, and long-term objectives.  

Let's consider a hypothetical scenario where your organization operates in the service industry repairing high-tech equipment for clients. This equipment requires parts that are currently imported from various regions. Some of those parts, given the country of origin and composition, are on the tariff list. Switching to domestic sources, if they exist, may not be an option in the near term. Additionally, there is a chance that after the organization makes a decision to switch, the tariffs could be paused or cancelled. The time, effort, and cost of identifying and implementing alternates become sunk and difficult to recover. Does the organization return to the original source or stay with the new source?  

The answer to this question depends on your longer-term strategy. Does switching actually make the organization stronger in the long term? If yes, then the switch is sound regardless of trade policy.  

How to Take Action & Design Resiliency into Your Organization  

Now may be a strategic time to use these disruptions as an opportunity to introduce new suppliers, alternate suppliers, and/or additional suppliers to eliminate risks associated with these disruptions. It may be an opportunity to engage with your Tier 1 suppliers to strategically assess, together, risks within Tier 2 and even Tier 3. This level of communication, integration, and collaboration leads to stronger relationships and supply chains. It allows you to drive to competitive advantage with a differentiator that drives operational performance.

This is especially important in the NPI process. Why not use an opportunity like this to identify and qualify suppliers, select the most capable partners, and build a risk elimination partnership? This kind of partnership drives innovation by drawing on the collective intellectual capabilities of suppliers as well as the internal team.  

The key to success and to shortening the time to deliver results resides in the answers to some key questions:  

• Are the organization's category management, risk management, and sourcing processes aligned to the organization's overall goals, including areas of concern identified by senior leadership?
• Is the “Profile the Need” step in the procurement process well defined? Is this a cross-functional conversation where multiple factors such as capabilities, technical specifications, and other attributes are clearly concise and prioritized?
• Is the “Profile the Marketplace” step in the procurement process well defined? Is it enabled with insights and information from multiple sources?
• Have you modified your selection criteria and weightings? If the organization is still using a set of selection criteria and weightings that were developed years ago or prior to the current set of risks, now is the time to update. While cost may still be a major driver, perhaps it does not garner the highest weighting today. Challenging the status quo leads to more informed decisions.  
• What technology is being leveraged? Leading organizations may rely on lengthy sourcing processes that go through multiple phases such as an RFI prior to an RFP. While speed is not necessarily a good thing, the sooner the organization is able to align on prospects and evaluate proposals, the better.  

One way to accomplish this is to prioritize research with technology solutions that identify prequalified, verified, and capable suppliers. This removes time and effort, allowing organizations to execute projects that address the identified risks in a timelier manner and drive to value realization sooner.  

How Can Avetta Help?

Avetta enables companies with actionable verified information to make informed decisions on which suppliers and contractors to partner with. Our software provides supply chain risk management professionals with the powerful solutions they need to navigate turbulent times. Avetta’s platform is trusted by over 130,000 prequalified and verified suppliers in over 120 countries. Visit Avetta.com to learn more about out supplier prequalification solutions.

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