Tariff volatility and slowing demand are forcing manufacturers to rethink how they manage cost, capacity, and innovation. A new KPMG survey shows CEOs leaning on AI and automation not just to cut expenses, but to build supply chains that can adapt as fast as global policy shifts.
Tariff Pressures Redefine Supply Chain Strategy
Manufacturing leaders are entering another cycle of volatility as tariffs and economic policy uncertainty weigh on global trade. According to KPMG’s 2025 CEO Outlook survey, 63% of manufacturing CEOs say supply chain disruptions are hindering innovation, while 69% expect to dedicate up to 20% of next year’s budgets to AI and automation.
“The business environment is casting a very, very long shadow for manufacturers,” said Brian Higgins, KPMG’s U.S. industrial manufacturing leader, in an official statement. “Economic policy uncertainty has been difficult to navigate, to say the least.”
The data supports that view. The Institute for Supply Management’s Purchasing Managers’ Index shows the manufacturing sector contracting for the seventh consecutive month as export orders fall under new tariffs. Many firms are responding by tightening procurement agreements, deploying financial hedges, and introducing dynamic pricing models to manage input volatility.
Some, such as General Motors, are taking structural steps, pledging over $10 billion through 2027 to expand onshore capacity. Yet such moves remain the exception. Only 18% of CEOs in KPMG’s survey named supply chain reconfiguration among their top strategic priorities, reflecting a cautious stance toward high-capital adjustments in an unpredictable policy environment.
AI Becomes a Tool for Cost Control and Speed
Faced with rising costs and demand uncertainty, manufacturers are shifting focus from generative AI pilots to “agentic AI,” in which autonomous systems execute actions without human prompts. KPMG found that 54% of manufacturing CEOs expect agentic AI to significantly enhance efficiency or drive growth within three years.
Procurement and planning are among the earliest beneficiaries. AI tools are now being used to draft and manage supplier contracts, monitor compliance, and detect value leakage between negotiated and realized savings. In parallel, manufacturers are embedding AI into financial forecasting and production scheduling to improve visibility and speed decision cycles.
While implementation requires up-front investment, most executives expect tangible payoffs within one to three years. “Automation, AI, humanoids, robotics, that is very needed,” Higgins said. The drive reflects a growing view of AI as a fixed element of industrial cost architecture rather than a discretionary innovation project.
AI as a Policy Shock Absorber
The growing use of AI across manufacturing isn’t just a technology trend, it’s becoming a stabilizing mechanism in a volatile policy cycle. As tariffs, trade incentives, and regional sourcing rules shift faster than physical networks can adjust, companies that have embedded AI into procurement and production planning gain measurable lead time in recalibrating costs and capacity. That time advantage, not new infrastructure, is what now defines resilience in the manufacturing economy.