Supply Dynamics Insights
Imagine the questions CEOs of major manufacturers are posing to their CPOs and VPs of Supply Chain at major manufacturing companies about the impact of the Trump Administration’s tariffs on their business (ref: Executive Order in response to Section 232 Investigation). The questions are innocuous enough:
- “How much steel and aluminum do we buy?”
- “What about the raw material that goes into parts manufactured by our outside suppliers?”
- “Do you know where our suppliers source their steel and aluminum? How much of it is domestically produced?”
- “What's the financial impact? How much is the price of our product going to increase based on the tariff?”
The surprising and unfortunate answer is one of the most disconcerting in business: “We don’t know.”
No Reliable Data Available for Raw Material Utilization
While some analysts say the tariff may not impact prices much for certain domestic OEM manufacturers, others including the Aerospace Industries Association beg to differ. The reality is that most companies have no idea and even if they did, the absence of extended enterprise visibility into the raw materials consumed by their Tier 1 – Tier n Contract Manufacturers would mean they’d have a hard time quantifying impact.
Findings in a government research study published after the most recent steel protections indicate considerable impact on steel prices and lead times.
Of course, it’s relatively simple to understand your own direct material utilization, but what about the materials that go into the parts made by outside suppliers? Many of our customers outsource upwards of 50-70% of their product manufacturing to outside machine shops.
Irrespective of the chaos and confusion regarding the newly announced steel and aluminum tariffs (e.g. who is exempt and who isn’t), this controversy underscores a glaring vulnerability for most large US manufacturers. The majority can not quantify and characterize the impact of unexpected raw material price shifts because they can’t tell you:
- What raw materials go into the parts made by dozens (and sometimes hundreds) of outside machine shops that they work with?
- From where are those materials being purchased? (i.e. domestic or international sources?)
- What’s being paid for them?
Mitigating Risk with Supply Chain Visibility
For most companies, digging through mountains of manually generated spreadsheets and surveying their contract manufacturers to come up with an answer will take months. However, with a supply chain visibility program focusing on material demand aggregation, answers can be served up in minutes.
For more than a decade, SDX, our multi-enterprise platform has helped Fortune 500 companies in the aerospace, industrial, energy, and automotive industries take all of the guesswork out of managing the extended raw material supply chain. With SDX you can:
1. Visualize your Extended Value Chain
Know where your raw materials are coming from.
2. Leverage that information to drive step change improvements in cost and service levels
Know how much steel and aluminum your vendors are utilizing.
3. Aggregate Raw Material Demand by Commodity Category, Form, Grade, Specification, and/or Dimension
Does it make sense for 25 of your Contract Manufactures who purchase 1018 carbon steel 0.5" bar round to be buying that material independently and on separate contracts? Of course not. With this information, though, you can enable collaboration and choreograph the process of purchasing raw materials off of one common contract.
4. Monitor & Mitigate Risk of Disruptions and Compliance Violations
Discover regulatory non-compliance and threatened manufacturing delays before they even happen.
Irrespective of whether Trump’s executive order is enforced or not, the vulnerability this tariff has brought to light demonstrates that most companies can’t answer the simplest of questions about their extended raw material supply chain. And since companies don't compete with companies anymore (supply chains compete with supply chains) every moment a Manufacturer postpones addressing these matters, is another day they falling behind their competition.
