With details surfacing in piecemeal fashion, companies and their supply-chain partners are struggling to recalculate their bottom lines and recalibrate their supply lines as quickly as possible, while absorbing the impact of both the newly outlined tariffs and likely retaliatory measures. Some are still recovering from the consequences of an earlier round of tariffs, in particular those on imported aluminum and steel. Any way you look at it, that’s a lot for any extended enterprise to acclimatize to in such a short period of time.
Companies shouldn’t view the looming trade debacle as an extraordinary event. Rather, it’s increasingly looking like a “new normal” of frequent and unpredictable upheaval. As such, proactive leaders should treat this as an opportunity to build the level of corporate agility that will be required to thrive in an uncertain and dynamic market.
If you consider the broad range of potential disruptive factors — worldwide political unrest, energy and water crises, natural disasters, cyber threats, economic and employment imbalances, Brexit fallout, emerging technologies and evolving consumer expectations — you recognize that resilience and agility are prime survival factors, not to mention competitive requirements. This is especially true for organizations that rely extensively upon supply chains for profitability, as is increasingly the case for companies of all sizes. Any approach to addressing the costs, risks, and operating effects of tariffs and regulations has to extend throughout the supply chain.
The accelerating turnover among Fortune 500 firms is just one proof point of the risk that’s facing companies today. McKinsey forecasts that more than 75 percent of the 2017 F500 will disappear by 2027.
Regulatory compliance alone has companies worried about the future. A 2017 survey conducted by Thomson Reuters and the Association of International Certified Professional Accountants highlights that 43 percent of business leaders believe regulation will be among the greatest disruptors to their business 25 years from now. As regulations such as the E.U.’s General Data Protection Regulation (GDPR) expand in scope to address the global, boundless nature of modern business, and state-specific regulations are implemented to counteract federal rollbacks, the burden won’t feel lighter anytime soon.
In the case of regulation, authorities are increasingly holding companies responsible for the actions (or negligence) of vendors and suppliers. Given the transparency afforded by online commerce, social media, and consumer review platforms, customers are quick to blame the primary brand for supplier mistakes or misdeeds, and can easily shift to a competitor. This presents unique challenges as companies outsource more to suppliers, who in turn do the same. The growing depth of supply chains and their more global nature mean companies have less visibility and control over suppliers, which can easily number in the tens of thousands for larger organizations. To scale any approach to such levels and be able to shift with changing regulations and tariffs, automation and agility are key.
On the flip side, if your supply chain is smaller or more specialized, the fallout from tariffs could wipe out an essential supplier. When supplies (often highly customized metals or components not available domestically) are suddenly unavailable or unaffordable, the midsized American maker will find it harder to adjust and absorb financial impacts than a big corporation can — and must do it in less time and with less room for error if it wants to stay afloat. Reports already abound about businesses going under and laying off significant portions of their workforce. American keg and nail manufacturers, to name a couple of examples, have been vocal about their struggles. Others, like small auto parts makers, are not yet ready to go public but have reported to the U.S. Chamber of Commerce that they have about 60 days until their cash flow gives out, and they have to start laying people off.
You need a strategic system of people, processes, and technology to power critical capabilities. Physical agility involves balance, speed, strength, and coordination. Business agility isn’t much different. The more integrated your systems and suppliers are — the more automatically they work in sync with one another and can adjust as needed — the more agile and competitive your business.
As the volley of global trade negotiations and regulations escalates, midmarket and larger businesses will need a comprehensive, integrated software-driven approach to everything from sourcing to payments if they hope to adapt to sharp price increases on direct materials, new import restrictions, the search for new suppliers, the loss of customers, and unknown factors that could endanger or complicate access to certain markets (e.g., China). While larger companies often have comprehensive procurement platforms in place, they might not be fully deployed, or haven’t been evaluated with today’s requirements in mind.
In fact, when technology isn’t properly evaluated, it can unintentionally create new constraints that actually reduce agility. The move to software-as-a-service (SaaS) solutions has brought significant benefits, including rapid ROI and lower total cost of ownership. These benefits often come in the form of standard configurations and the inclusion of upgrades in fixed subscription fees, meaning many solutions have been architected in a way that may optimize some financial factors, but not agility. This is particularly true among solutions where the focus has been squarely on rapid deployment and embedding of best practices, to which companies must adapt their processes. In the face of rapid and uncertain regulatory and trade changes, there’s no time to be anchored to your vendor’s roadmap when requirements change. A key criterion in a technology evaluation should be the ability to meet unique or emerging requirements without vendor enhancements.
The best way to become better at re-assessing risk, shifting strategies, and adjusting quickly is to collaborate while you work to develop greater financial flexibility and overall resilience. You can’t make adjustments in a vacuum, and the more you include your suppliers, the more likely you’ll be able to preserve your relationships and preferred customer status.
Many suppliers are struggling with the same challenges — if you’re easy to work with, you’re more likely to get a good deal and be a customer of choice. The ability to collaborate and work out a feasible solution or new model with suppliers, or to quickly identify new and equally reliable suppliers, is the key to agility. Effective solutions support supplier assessments through flexible and easy online questionnaires that can be configured by end users and distributed both internally and externally. The ability to launch and track automated improvement plans once gaps are identified (for example, GDPR non-compliance) further enables scaling efforts to meet new requirements.
Robust, integrated project-management functionality is also critical to developing and tracking progress and compliance in complex scenarios. It should streamline and systematize the sharing of information, assignment of responsibilities, automation of alerts and status tracking, and documentation of auditable activities.
If you’re the fastest, strongest, and most nimble among your competitors, you’ll be the first to secure suppliers, market share, and margins. On a global playing field, the rules of the game are constantly changing. No matter the size of the company, success will increasingly depend on the ability to adapt. And for companies that are highly dependent on their supply chains, strengthening adaptability requires integrated, intelligence-driven technology systems.
Alex Saric is chief marketing officer of Ivalua.