Boom-bust-what's next: Preparing for supply chain instability by learning from our past
The tech sector often produces rapid innovation and growth in waves. A few years ago, the COVID-19 pandemic brought unprecedented unpredictability, leading to an initial stall, followed by a massive boom in the SaaS and IT industries driven by the need for remote work solutions, cloud services, and digital collaboration tools. Foundational technologies like enterprise IT networking also saw increased investment as companies rushed to purchase hardware and software to accelerate their digital transformation efforts and support secure, hybrid work.
Like other variables during the pandemic, the 'boom' period was short-lived. Instead of sustained growth across the tech market, and the IT networking space in particular, a staggering demand overestimation by more than $120 billion caused a frenetic 'bust' that threatened to paralyze the industry.
Supply chain volatility plays a significant role in these boom/bust cycles. Lockdowns and delays during the COVID pandemic dragged raw material supplies down substantially, creating initial pent-up demand and backorders.
Tariffs also impact this cycle, with extreme price pressure for raw materials imported from foreign countries causing turbulence, especially in the enterprise hardware technology market.
With the 25th anniversary of the dot-com peak and a challenging tariff environment along with a new IT industry buying cycle due to extreme demand for AI infrastructure and compute power, what lessons from the past can inform better supply chain management decisions?
THE IMPACT OF TARIFFS ON THE TECH INDUSTRY AND THE SUPPLY CHAIN
The potential impact of U.S. tariffs continues to loom large over the tech industry—especially following implementation on April 2nd, and the reciprocal behavior from other countries. Tariffs on imported goods from countries such as China, including the components needed to create fully formed tech and IT hardware, are likely to slow growth and create pricing pressure across the supply chain.
For example, enterprise network switches have 300 different components sourced from different countries around the world. Any disruption in the supply chain due to tariffs could make these components costlier to use and import, stunting AI's promise and technological advancements needed to make IT management easier, more efficient, and more effective.
Fortunately, the last supply crunch taught valuable lessons about the importance of real-time planning, optimization, transparency, and a pragmatic approach to managing a dynamic supply chain. During the COVID-19 pandemic, the initial rush to adopt new technologies was driven by necessity, but it also led to hasty decisions and overinvestment in some areas.
As technology buyers anticipate the potential impact of tariffs, it's essential to take a holistic approach to understanding your supply chain, assessing where pricing pressures will likely be the strongest, adjusting as needed, and replacing suppliers and operations with countries that have a more tariff-friendly environment.
ACTIONABLE ADVICE FOR MANAGING SUPPLY CHAIN DURING MARKET CHAOS
Taking a measured approach to managing the global supply chain before making significant investments is critical. Be prudent with this process and carefully evaluate the long-term value and sustainability of new technologies and new supply partners, and weigh the impacts of tariffs before making any major decisions. Leveraging technology can help, for example, overhaul legacy and manual supply chain management processes, and implementing automation tools, such as inventory management systems and cloud-based platforms, can support real-time planning, re-routing, and execution across various functions.
Throughout this process, technology vendors should prioritize transparency and communication with partners and customers. Being open and honest about supply chain drag and upstream pricing pressure can ease concerns and empower customers to make more prudent decisions when planning for future technology purchases and deployments, particularly for extensive AI networking, infrastructure, and data center expenditures.
Additionally, establishing a dedicated team of supply chain and IT experts to drive continuous improvement and innovation in supply chain management is imperative, especially in the emerging environment.
ARE WE MORE PREPARED THIS TIME AROUND?
In what should come as no surprise, most companies are exploring AI to drive operational efficiencies and employee productivity, though a recent survey found 32% of CIOs and senior IT leaders had not yet seen significant ROI from AI investments nor efficiency improvements post-implementation. As AI matures, it will be used to create better user experiences, necessitating infrastructure upgrades and supply chain improvements to accommodate current applications.
Significant investments have also gone into building new infrastructure for AI, leading to the rise of the 'AI factory,' or new data centers purpose-built for AI applications and power consumption. New AI-native infrastructures are seen as future-proof investments, as opposed to retrofitted ones that may not scale into the future.
Legacy network systems and conventional supply chain cycles will not be able to support AI unless they evolve from single-purpose to multi-purpose systems, are capable of accelerated computing,and have full software-defined workloads. Companies are already investing in accelerated computing as the foundation of new infrastructure, paving the way for new revenue streams.
The question remains: Are we better prepared this time around to help customers navigate the complexities of innovative technology and the potential impact of tariffs? The answers lie in our ability to help end customers understand how to effectively plan to ensure their technology investments deliver real, tangible ROI while also avoiding rushed decisions related to the latest newsworthy developments in AI.
By focusing on practical applications of AI, adopting integrated platforms, and leveraging the expertise of Managed Service Providers (MSPs), organizations can navigate the challenges of the future and emerge stronger than ever.
The technology boom-bust cycle during the COVID-19 pandemic, and the previous cycle of U.S. tariffs from the first Trump administration, have taught us valuable lessons about the importance of transparency, prudence, and a pragmatic approach to new technologies. As we enter the age of AI in networking, these lessons will be essential in helping us avoid another boom-bust supply and demand cycle and achieve sustainable, long-term growth.
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