As global supply chains evolve, proactive companies will respond with agility and resilience, looking to the future. Forecasting and predictive capabilities will become a must in securing end-to-end supply chains.
In the ever-evolving landscape of global trade, tariffs have become a significant concern for industries reliant on imported materials in their end-to-end supply chain and a potential opportunity for resilient, innovative and domestic-focused supply chains. With the imposition of significant tariffs on steel and aluminum along a smaller, across-the-board tariff for imported materials, businesses in these sectors face increased costs and supply chain disruptions.
However, by rolling out forward-looking strategies, metal fabricators and machinists can mitigate tariff exposure and maintain competitiveness. The best companies that pivot to take advantage of these opportunities will not just survive, but they will thrive for decades to come.
Assess Risks and Vulnerabilities
Although it is a constantly evolving situation, successful companies must immediately assess their situation. Review your end-to-end supply chain for risks and vulnerabilities.
Given your current sourcing and tariff structure, assess the risks and cost impacts to your supply chain. Go beyond your supplier to your supplier’s supplier, and your supplier’s suppliers’ suppliers’ supplier. Which countries of origin are you dependent on? How vulnerable are they to tariffs? Although subject to change, the high-risk for tariffs in the metal fabrication and machining industries will relate to the composition of imported steel and aluminum.
For example, an industrial machine manufacturer rapidly assessed their end-to-end supply chain. They had recently outsourced steel castings to India although they also had a few smaller, U.S. sources of supply. They had to dig further into their U.S. source of supply to determine the country of origin supplying their steel and aluminum. They purchased both raw castings and machined castings although they had internal capabilities to machine castings as well. Thus, they could assess their sales forecasts and resulting capacity and supply plans with their SIOP (Sales Inventory Operations Planning) process. Their supply plans will review their capabilities and internal capacities and compare them with domestic suppliers as well as global suppliers. Armed with this information, they could run margin impact study scenarios and evaluate short-term and long-term options.
Larger suppliers are more likely to manufacture and fulfill orders from multiple production facilities. A quick solution might be to request that your supplier produce and ship from their U.S. location instead of their foreign site. For example, an aerospace manufacturer received materials from their supplier’s Mexico facility. As tariffs arose, they quickly pivoted and reallocated production to their U.S. facility to mitigate the impact of tariffs.
Backup Sources of Supply
Every company should have a backup source of supply for core materials and components. In today’s volatile and uncertain environment, you must build resilience with backup and alternate sources of supply. A backup source of supply is not simply finding a supplier and adding them to a list if supply is disrupted. When supply is disrupted, it is likely the backup source of supply will have an overwhelming number of requests from industry players. Thus, you must stand out from the crowd as a partner so that your backup source will prioritize you if/when that happens.
For example, when a medical products manufacturer secured a backup supplier for their critical raw material, they treated the backup supplier as a partner. They were upfront with the supplier on their position as a backup source of supply and committed to purchasing 20% of their needs from the supplier. Their private equity backers were not pleased with the extra cost the domestic manufacturer collaborated with the backup source of supply on new product development ideas to improve product performance and margins and share in the savings. When a disruption occurred in the global logistics supply chain which negatively impacted their main source of supply, their backup source of supply came through and increased shipments even though the manufacturer was smaller.
Diversify Sources of Supply
Backup sources of supply will not be sufficient. One of the core strategies to mitigate the impact of tariffs is to diversify your sources of supply to different countries and/or suppliers. Assess the geopolitical and tariff risks impacting the most likely sources of materials and components in your end-to-end supply chain. Review the landscape and potential strategies with your suppliers, industry partners, consultants and trusted advisors to rapidly assess your best path forward. The most successful companies will have multiple sources of supply domestically and in friendly countries that are most likely to gain favorable tariffs with minimal risk and reasonable cost.
Expand Manufacturing Capabilities
Companies that are well-positioned in the end-to-end supply chain with domestic manufacturing and companies that quickly pivot to expand their domestic manufacturing capabilities, supported with a local or regional supply chain, will have significant opportunities for growth and success. In addition to mitigating tariffs, it is likely that manufacturers will gain tax and capital incentives supplemented with deregulatory benefits. More importantly, companies that are not resilient and put improvement projects on hold until business certainty is gained will struggle as disruptions occur and as customers ramp up, thereby creating a significant opportunity for forward-thinking and prepared manufacturers. They will take advantage of the opportunity, scale up rapidly, and thrive for decades to come. Customers will be unwilling to wait for extended lead times and will pay a premium to secure a reliable and quality partner. In addition, the best companies will also redesign products to minimize tariff exposure, labor impacts, and material composition.
Vertical integration is becoming a strategic advantage. Not only will vertically integrated companies be able to quickly respond to changing business conditions, but they will also mitigate cost, stand out with quick lead times and product introduction cycles, and provide the insurance-like benefit of secure supply. There is also a benefit to designing each step in the supply chain to maximize productivity, profitability and customer value. For example, products designed to work optimally with specific materials and equipment will perform better and drive bottom line results.
Predictive Planning
As you reconfigure your end-to-end supply chain, design and roll out predictive planning and supply chain processes such as demand planning, capacity planning, advanced planning, material forecasting, and SIOP processes. These business system upgrades enable predictive processes and analytics to stay ahead of changing conditions and provide “what if” type capabilities to evaluate alternative strategies such as make vs buy, sourcing strategies, etc. These types of predictive planning capabilities will also provide cost impacts and forecasts associated with different tariff mitigation strategies so that pricing options can be assessed.
For example, an industrial equipment manufacturer rolled out a SIOP process to better align demand with supply. As geopolitical risks and potential tariff impacts arose, they quickly forecasted demand for key materials. Armed with this information, they secured supply of critical materials for the next 12 months-to-18 months and negotiated a favorable contract early in the cycle prior to their competition, supporting their aggressive growth plans.
Metalworking fluids are estimated to make up as much as 10% of the cost of a finished part, so anything you can do to better manage disposal will save money. Koss Aerospace lowered new coolant purchases by 75% by recycling fluids in-house.
Advanced Technologies
As companies reconfigure supply chains and expand domestic manufacturing capabilities, it is an ideal opportunity to embrace technology and automation to help metal fabricators and machinists offset increased costs associated with tariffs. Advanced manufacturing technologies, such as additive manufacturing and robotics, can enhance production efficiency and reduce labor costs. Additionally, implementing data analytics and artificial intelligence can optimize supply chain operations, improve decision-making, and enhance customer value. In addition to these advantages, advanced technologies will enable a quicker capability to scale.
The Bottom Line
As global supply chains evolve, proactive companies will not just respond with agility and resilience, but they will also look to the future. Forecasting and predictive capabilities will become a must in securing end-to-end supply chain needs amidst constantly changing business conditions and in resource-intensive supply chains. Nimble and innovative manufacturers that are willing to pivot will gain market share and thrive for decades to come.
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Key Considerations For Leveraging AI and Predictive Analytics To Cut Through the Complexity of Supply Chains