Supply Chain Roundtable: No Pullback on Economic and Geopolitical Issues
As seems to regularly be the case as of late, the questions posed to Institute for Supply Management®’s (ISM®) monthly roundtable of experts could easily have had a “pullback” option.
As in, the ability to pull back the inquiries for revisions after they’ve been submitted, due to breaking economic and supply chain news. Panelists had already fielded the questions for September when geopolitical conditions got even more fraught in the Middle East, sending diesel prices to an all-time high, and the U.S. Federal Reserve raised interest rates (though that was not unexpected).
Still, the Roundtable effectively encapsulated the challenges for supply management organizations in the current economic environment, even if members were not asked about conditions up to the minute. They are:
- Michelle Rohlwing, MBA, ISM Manager, Product Development, Innovation and Learning
- Teresa O’Brien, ISM Senior Faculty Member, Product Development and Innovation
- Lenora Sevillian, LP.D., MBA, CIPP, CPPP, CPCM, executive director, community engagement at E&I Cooperative Services, a Jericho, New York-based nonprofit purchasing co-op serving the education industry
- Jeffrey Wincel, D.Min., MBA, former senior vice president and CPO at NXP Semiconductors.
Questions regarding companies’ tariff-policy response and AI adoption followed. Lastly, panelists pondered the preponderance of pumpkin spice products at this time of year, and how it could relate to supply chains.
Q: Regarding the August PMI® data, ISM’s Manufacturing Business Survey Committee Chair said, “I’m starting to see warning signs.” From a supply chain perspective, which elements of the economic landscape — oil prices, commodity inflation, employment sluggishness or something else — concern you most?
Sevillian: Commodity inflation concerns me most, and I regard oil as part of that concern rather than apart from it. The Manufacturing Prices Index indicated a 23rd consecutive month of increases in August, and the committee chair attributes the pressure to steel and aluminum, tariffs and petroleum-based products affected by the Middle East conflict. The warning lies in the combination. Prices remain firm while the New Orders, Backlog of Orders and Employment indexes all lost ground and supplier deliveries slowed for a ninth consecutive month. When demand cools and costs do not, margins absorb the difference.
Sustained price pressure also carries an integrity dimension that is easily overlooked. Volatile markets tend to invite unsupported surcharges, loosely documented price adjustments, and hurried sole-source awards. Escalation clauses tied to published indexes, should-cost analysis and documented justification for each price change protect both the budget and institutional accountability, while mutually beneficial supplier partnerships make those difficult conversations more productive.
Rohlwing: I’m most concerned about employment sluggishness and the uncertainty about demand that comes with it. Most organizations have learned how to manage swings in commodity costs, like oil prices. However, it’s much harder to plan around customers delaying their spending or businesses pulling back on investment. When demand slows down, forecasting becomes less reliable, inventory risks increase and supply chains can quickly shift from managing shortages to managing excess capacity. Add to that ongoing trade and geopolitical uncertainty, and the real warning sign is the combination of slower demand, slower hiring and unpredictable markets. This will make it harder for supply chain leaders to make decisions with confidence.
O’Brien: I’m less concerned about any single commodity than I am about the divergence between costs and demand. The Manufacturing Prices Index sits at 71.1 percent while new orders, backlogs and imports have all lost momentum. We could be entering an environment where costs remain sticky but the ability to pass those costs through gets weaker. That’s when procurement, inventory management and demand planning become top of mind.
Wincel: It has been some time since the Manufacturing PMI® has been in expansion territory (above 50 percent) for multiple months, so the “warning signs” might just be a reminder of the need to put back on the industry specific or commodity specific procurement hats that drive strategy. The issues to be most concerned with are dependent on which part of the market one is engaged with. For supply professionals engaged with commodity-like purchases, economic inflation pressures will take center stage. Basic commodity prices, petroleum-based products, fuel surcharges and oil-derived energy/power costs quickly jump to the front of the line. Such options as alternate supply, substitution options and leveraged purchase decisions might become common practice again.
In contrast, buyers engaged with highly engineered products and longer-term (contract-based) purchases will likely look at broader economic indexes to access, plan for and attempt to offset longer term impact of pricing pressures. Contract-based economic clauses and/or offsetting price reduction schedules are likely to be revisited to assess potential negative impact. These buyers will need to assess embedded contract extension clauses and termination clauses to effectively trigger beneficial terms or postpone economically negative terms. Finally, corporate services/MRO/capital expenditure buyers will need to focus not only on the short-term impact of pricing pressures, but also the longer-term impact of changes in interest rates. Purchase acceleration or pushouts could be driven by the current economic pressures. Economic order quantities (EOQs), inventory holding costs, payment terms and the like can all be affected by structural changes in cost of money.
Q: The cover story in the September/October issue of Inside Supply Management® emphasizes the importance of procurement and other company functions being on the same page regarding tariffs. What are the best ways to break down these silos to ensure tariff exposure is considered before sourcing and investment decisions?
O’Brien: Moving tariff analysis from the back end of sourcing to the front end. A sourcing recommendation shouldn’t reach an approval meeting saying, “Supplier A is 8 percent cheaper.” It should say, “Supplier A is 8 percent cheaper on piece price, 3 percent cheaper on total landed cost today, and here’s what happens under three tariff scenarios.” Once everyone is looking at the same economics, the silos start disappearing.
Wincel: Procurement’s role in tariff management is typically more than simply being on the same page, it usually means being fully integrated with finance and supply chain management teams. Despite the recent political attention that has been making the news, duties, tariffs and tariff management have long been a part of TCO or total cost of acquisition decisions. Although country-based tariffs have taken on increased focus, product-based duties through harmonized code designation have long been part of the acquisition model. By aligning with operational finance, supply chain organizations and contracted customs brokers, procurement plays a key role in assessing the full impact of non-product cost factors on sourcing decisions.
What political actions have shown is that tariffs are not a static model, and processes need to be put into place that capture and adjust to the changing situation. For example, tariffs assigned to individual harmonized codes can change regularly, either increasing or decreasing, and individual products can be categorized under different codes. Country-based duties in recent history have also rapidly changed. Properly classifying purchased items accordingly can have significant financial advantage to organizations.
Sevillian: Procurement is the focal point where tariff exposure becomes visible, yet it is too often engaged after a site, design or capital commitment has already been fixed. With 76 percent of trade professionals surveyed expecting the current tariff approach to persist for at least four years, according to a report by Thomson Reuters, tariff exposure belongs in formal governance rather than ad hoc coordination.
Three measures are especially effective: a standing trade risk council that includes procurement, finance, operations, compliance and IT; a tariff review step within capital and sourcing approvals; and a single, shared record of classification and origin data. The governance dimension deserves emphasis. The Thomson Reuters report describes deeper scrutiny of tariff classification and country-of-origin claims. When cost pressure rises, so does the temptation to classify favorably or accept unverified origin declarations, and documented, auditable decisions protect the organization from penalties and reputational harm. Shared total landed cost objectives, rather than unit-price targets alone, give every function a reason to raise exposure early.
Rohlwing: The key is getting the right people involved earlier. Procurement, finance, operations and leadership need to talk before major sourcing or investment decisions are made, not after. If everyone understands the potential impact of tariffs upfront, companies can avoid unexpected costs and make better decisions. Tariffs shouldn’t be viewed as just a procurement issue. They can affect pricing, profitability and long-term strategy. The organizations that handle tariffs best are the ones that encourage collaboration across departments and make sure all costs and risks are considered before decisions are made.
Q: What can be done to ensure AI adoption reduces workload and improves decision-making rather than creating more complexity, burnout or uncertainty for employees?
Wincel: I think the unfortunate reality is that in the short term, AI adoption is going to create increased complexity as a result of the uncertainty of the tools, processes, results and integrity. For the foreseeable future, organizations are going to be running dual legacy decision-making processes and AI-based decision-making processes side by side. Until there is a proven track record of aligned legacy-AI decision credibility, the potential impact of an incorrect AI-based decision is simply too big to abdicate to an AI model alone or too quickly. An issue is whether the quality, speed and accuracy of AI decisions exceed legacy systems to an extent which makes the cost of the AI models worth the investment. The ability to avoid burnout is squarely on the shoulders of the management team, who must recognize the duplication of work, assist in the implementation and utilization of AI tools, and move beyond the AI buzz to proven AI benefit.
Rohlwing: To get the most value from AI, companies need to focus on using it to simplify work, automate repetitive tasks, and provide better information for decision-making. AI should help employees work more efficiently, not create additional complexity. Clear communication, training and a focus on solving real business problems will help to ensure AI becomes a tool that supports employees rather than adding to their workload or uncertainty.
O’Brien: I think we need to stop measuring AI adoption and start measuring AI subtraction. What did we take off someone’s desk? How many hours have disappeared? How many handoffs have disappeared? How much faster did the decision become? If we’re giving people AI but keeping every spreadsheet, approval, report and legacy process they had before, we’re not transforming work — we’re just adding another layer of technology.
Sevillian: Adoption alone does not reduce workload. In a 2024 Upwork survey, 77 percent of employees using AI said the tools had added to their workload, and 47 percent did not know how to achieve the gains their employers expected. The design of the work surrounding the tool largely determines the outcome.
I would begin with governance. Staff should know which tools are authorized, what confidential information must never be entered and when a person, rather than the tool, makes and owns the decision. Accountability cannot be delegated to software, particularly in public and private procurement, where award decisions must withstand audit and scrutiny. From there, organizations should identify the tasks AI will remove before introducing it, measure results against a baseline, and provide role-specific training in prompting and output verification. Leaders should also resist converting every efficiency gain into higher expectations, which turns a productivity tool into a source of strain.
Q: As we head into the fall, what’s the “pumpkin spice” of supply chain — meaning, the trend or buzzword you may be seeing everywhere?
Wincel: “Confirmation bias” seems to be the buzzphrase touching nearly all aspects of professional life including supply management. Discussion of confirmation bias has included (1) sourcing decisions and supplier financial, quality, delivery and product performance, (2) one’s views on the effectiveness or benefit of AI implementation, (3) decisions regarding staffing, promotions and salary increases, (4) success criteria/results for personal, operational and company performance and (5) perhaps every aspect of professional life. While confirmation bias can and does occur, there is an implication that it is not only prevalent but dominant in modern business. This seems to be overstated and unfair. My experience in business has been that for most professionals in most situations, decisions and performance analysis is based on thoughtful observation and critical decision-making. So with a wink, I’d say that confirmation bias has become a self-fulfilling prophecy.
Rohlwing: Like many trends, there’s still a lot of buzz around AI, but organizations are still trying to determine how to use it effectively. The companies that will benefit the most are the ones that focus on solving real business problems rather than adopting technology simply because it’s the latest trend.
Sevillian: The pumpkin spice of this season is agentic AI: software agents designed to act with limited human direction. Spending on supply chain management software with these capabilities will grow from less than US$2 billion in 2025 to $53 billion by 2030, according to Gartner. Like the seasonal flavor, the label is applied generously. Gartner also warns of “agent washing,” estimating that only about 130 of the thousands of vendors in this space are genuine and predicts that more than 40 percent of agentic AI projects will be canceled by the end of 2027. From a governance perspective, an agent that sources, negotiates or transacts is exercising delegated authority and should be controlled accordingly. Segregation of duties, spending limits, approval thresholds and complete audit trails apply to an agent as much as to a buyer.
O’Brien: Agentic AI is this season’s pumpkin spice. It is in everything — even when it would be best left out.
(Photo credit: ISM)