Are You and Your Supply Chain Ready for Import Tariffs?
February 21, 2017
Trade between the U.S. and other countries will likely become more complex, in part because of growing sentiments that import tariffs will rise significantly. Are you and your supply chain ready for all the ramifications of this new world?
The purpose of this article is not to offer an economic primer on the relative merits of free / fair trade versus tariff-impacted trade. Most college-educated professionals who suffered through a basic economics class are well-aware of the arguments that each side puts forth. For those interested in a quick refresh, the following two articles do a relatively unbiased job summarizing the basics:
The purpose of today’s article is to ask supply chain and sourcing executives to reflect upon three immediate topics relating to the potential imposition of wide ranging import tariffs on goods entering the U.S.:
• Is your sourcing organization ready to respond dynamically to what could be a fast-changing world order? Do you have the competencies residing in your organization today? And, do you have the necessary bandwidth?
• Is your supply chain, and are your supply chain partners, capable to respond pro-actively and work with you in what could be a period of significant uncertainty and roiling markets?
• Do you have already-developed plans to reduce supply risk from at-risk countries such as China and Mexico (who represent the bulk of Low Cost Country Sourcing supply for most companies)?
If you answered at least one of these questions with a “no” or a “not yet”—keep reading!
The supply chain impacts are likely to be direct and visible (e.g., higher prices on purchased goods and raw materials), indirect and pervasive (e.g., higher interest rates), and involving subtle but significant non-price components of the Total Cost of Ownership (e.g., logistics and warehousing costs, supply disruption, etc.). There is also an expectation, among some analysts at least, that the US Dollar will strengthen vis-à-vis other major currencies. This could have at least two impacts:
• increasing the costs of US exports into world markets (in relation to the receiving country’s domestic currency) – with a potential adverse impact on sales by the US corporation
• potentially more “buying power” for the US corporation for those offshore goods and services normally priced in local currencies (this latter impact could be substantially offset by the imposed tariffs on the goods as they enter the US market)
As the above high-level summary suggests, the future will not be a simple exercise of “picking the apparent low price supplier.” Scenario planning, risk evaluation and management, and genuine Strategic Sourcing & Negotiations Management, will be fundamental for success.
As we know from our work assisting clients in many industries on the procurement transformation journey, most organizations do not have the necessary competencies nor the required bandwidth to get ahead of the curve on these challenges. Success requires insight, foresight, and a commitment to transformational change from the very top.
Those who start the journey promptly, and gain the active support of their top management, will be among the survivors.
The others? Well: “One year from now, you will have wished you had started today.”
If you are among the estimated 90% of companies who have not begun the transformational journey to supply management as a strategic function, NOW IS THE TIME to get going!
For additional information on how to obtain top-level support, contact the author or read the author’s highly-endorsed book: Next Level Supply Management Excellence: Your Straight to the Bottom Line® Roadmap
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