Election-year effect: The scenarios that could impact the supply chain

As procurement and supply chain teams continue to adjust to inflation and cost pressures, the United States is gearing up for a significant presidential election. Regardless of the outcome, the results will undoubtedly impact businesses and supply chains—potentially driving global market volatility.

C-suite executives are already highly attuned to geopolitical uncertainty. According to an Economist Impact survey, one out of three C-suite executives identify geopolitical impacts as the top concern for organizational risk in the next 12-18 months. These abrupt changes place supply chains in the spotlight, as teams must guide their companies through unforeseen scenarios.

One concern is the recent strike by the International Longshoremen’s Association (ILA), which represents 45,000 workers at multiple major ports on the East Coast. While a drawn-out interruption has been avoided, businesses moving materials and products through these sites must have the visibility to know if they will be impacted and the agility to identify and execute on alternate routes. While the strike was averted, this was proof that organizations should be better equipped to adjust production plans and customer expectations.

With potential for even greater disruption, the U.S. presidential election is approaching, and procurement and supply chain leaders should be prepared to respond to new legislations, macroeconomic fluctuations, and other events that could directly impact their business.

Major market reactions

Since 2020, a combined and near continuous occurrence of geopolitical risks, economic crises, and other events have demonstrated that businesses that prepare based on forecasted threats fare better than those that only attempt to manage those that do occur. During these periods of volatility, procurement and supply chain should be viewed as the organization’s pulse: a key motion of a company to keep healthy and viable for the business to run smoothly.

Procurement, production, and sales teams must have a clear, mutual understanding of how adjustments to factors like consumer spending will impact the supply chain, forecast, and budget. This is especially crucial when figures fluctuate more than anticipated. For instance, according to a U.S. Commerce Department report, retail sales fell 0.8% from December 2023 to January 2024, a significantly larger drop than the 0.1% projected by economists in the post-holiday season. This pushes all facets of a manufacturer, including their supply chain partners, to adapt quickly and stay in sync.

The upcoming election’s potential to impact businesses necessitates an agile and adaptable supply chain. Companies must be prepared to redirect and pivot their resources in response to any changes to regulations and trade decisions, much like they would in anticipation of an impending weather event. If a company’s supplier is likely to be affected by the outcome, it is crucial to identify, monitor and act on the associated risks. To say that a company’s supplier is affected is to say that the company itself is affected too.

In the weeks following the election, teams may need to take proactive measures as the president-elect aligns their cabinet and outlines goals for their term. To address these challenges promptly and effectively, businesses that leverage advanced technologies like artificial intelligence (AI) and networked supply chain collaboration solutions will be the most resilient. Such tools deliver visibility and operational efficiency to enable companies to navigate the uncertain landscape and maintain their competitive edge in the face of political and economic shifts.

Impending regulation and incentives

Regardless of the outcome, the U.S. will see a new administration in January. A new administration almost certainly means new legislation—which can translate into changes in how companies do business. In the U.S., domestic production and manufacturing have been on a recovery journey, adding roughly 1 million jobs between 2010 and 2021 after losing nearly 6 million over the previous 10 years, according to reports. McKinsey estimates that restoring manufacturing competitiveness could boost U.S. GDP by 15%. However, achieving this will likely require key tax incentives for businesses, which should be closely monitoring the implications. For example, tax incentives to build with steel, iron or products mined and produced in the U.S. could offset the price of moving production from a lower-cost country. 

Sustainability is another area where new regulations could drive change. The EU has already implemented enhanced sustainability monitoring through the Corporate Sustainability Reporting Directive (CSRD), regulating companies to prioritize sustainability in their supplier selection. This is another area where business-to-business network technology can help companies find and connect with suitably compliant suppliers. Similar regulation is gaining traction in states like California and is likely to spread to other areas of the U.S.

These are just a couple of examples of why responsible sourcing strategies are no longer optional. Gaining visibility across a multi-tiered supply chain, from raw materials to finished goods, is essential. Companies must not only prioritize suppliers that meet environmental standards but also report those metrics across their entire supply chain; not an easy compliance effort without the right trading partner collaboration technology in place.

Potential trade restrictions

Trading relationships and trade routes are being increasingly strained by geopolitics. While new regulations could afford some lead time before implementation, trade restrictions may happen more quickly, putting pressure on companies to get and stay prepared for fast adaptation. In an election year for more than two billion voters in 50 countries, businesses should prepare not just for Plan B, but Plan C and D. And the way to have this type of flexibility is having options; options to source supply from different places and deliver product through different channels.

As mentioned before, responsible sourcing and adaptable supply chain practices will be paramount. Global companies should take stock of potential alternative suppliers and carriers who may be local or in other countries with less political or trade implications—considering the impact on production capacity, logistics challenges and tariffs.

Organizations must plan to respond to such geopolitical risks through trading partner diversity. More than one-third of Economist Impact survey respondents have a long-term focus on diversifying their supplier network (40%) and multisourcing (35%) to insulate supply chains from these threats.

Generative AI and global business-to-business network technology can make responsible sourcing and supply chain processes easier by recommending high-quality suppliers based on past success and intelligent applicant analysis. Today’s technology can find suppliers that meet sustainability requirements and balance other important factors such as cost, labor, logistics, and diversity of suppliers. 

Conclusion

Building a resilient supply chain network that can flex and flow in the face of geopolitical risk and other areas of uncertainty can help companies account for the effects of major events like the upcoming elections.

However, building a stronger supply chain requires being proactive and finding solutions to problems before they happen, rather than reacting to changes after the fact. Powerful tools like generative AI, supplier management technology and business-to-business network collaboration technology, can help close the gaps along a supply chain to mitigate the risk that geopolitics poses to global supply chain performance.

About the author

Etosha Thurman is chief marketing officer, Intelligent Spend and Business Network at SAP.

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