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Sourcing Study Reveals High Anxiety That Tariffs Inflate Production Costs

LevaData’s 2019 Cognitive Sourcing Study reveals that 89 percent of supply chain and procurement executives are concerned that tariffs will cause production costs to increase over the next year.

The study addressed the concerns of more than 200 senior procurement and supply chain leaders at global manufacturing firms and looked at the practices and tools manufacturing companies use for sourcing, with a focus on the adoption of transformative technologies.

The third annual report card on strategic sourcing, procurement and new product introduction shows that manufacturing, consumer goods, automotive, tech and telecommunications will be hit the hardest.

Respondents noted a range of methods they’re likely to adopt to reduce the impact of the expected cost increases. Nearly half (45 percent) said they hope to find savings by making their production process more efficient, 54 percent acknowledge they’ll have to pass these costs on to consumers and 43 percent said they plan to renegotiate supply deals and pass along cost increases to their suppliers.

LevaData also found that manufacturing organizations still rely on outmoded analog processes, but there is increasing movement toward advanced technology solutions.

A majority (58 percent) of respondents said their supply management sources are still managed by individual commodity managers, but 50 percent have at least some sort of central system for storing supplier insights and spend data.

“This year’s survey shows that a surprisingly high number of enterprise…and sourcing teams are still using the same analog systems and processes that they have been using for more than 20 years–individual category managers with spreadsheets. The lack of centrally located data alone exposes these companies to significant risk,” Rajesh Kalidindi, founder and CEO of LevaData, said.

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“Meanwhile, a small but growing number of companies are adopting transformative technologies that will allow them to strategically consider millions of data points affecting the supply chain,” Kalidindi added. “These companies are able to significantly outmaneuver competitors.”

But manufacturing organizations aren’t just limited by analog processes. There is also a pervasive failure to think about strategic sourcing on a larger scale, LevaData said. Although there’s a clear opportunity for strategic sourcing to improve a company’s speed and agility, only 5 percent of respondents cited “building a competitive advantage” as a key measure of strategic sourcing success. The majority (68 percent) were focused on cost-cutting.

In addition, strategic sourcing and procurement teams continue to be handicapped by the amount of time they spend “fighting fires,” with 46 percent of respondents saying at least a quarter of their time is spent on these tasks.

“Compare this to best-in-class companies, which we’ve found spend less than 15 percent of their time this way,” Kalidindi added.

LevaData, headquartered in San Jose, Calif., helps global enterprises improve gross margins by reducing supply chain costs, with a focus on delivering measurable and accountable supply chain solutions and strategies that transform companies. The LevaData Cognitive Sourcing Platform allows customers to sense, recommend, act and learn.