Tariffs: Is it Time to Rethink What Goes Where?

Did you think the U.S. tariffs on Chinese goods were temporary bargaining chips to get concessions from China? Now that essentially every item imported from China is subject to tariffs, are you thinking again?

As the U.S.-China trade war shows little sign of ending, supply chain managers have to find new ways to keep costs down and deliver value to customers. Here are three suggestions to help you adapt:

1. Identify your exact exposure. The Trump administration has sometimes backed off or delayed tariffs. Even if you can’t stop a trade restriction or tariff, the first question to ask is, “can I work around it?”

Tariffs and trade regulations are detailed legal documents. Scrutinize those details and you might find ways to mitigate your exposure. Rules also have exceptions, and according to the Associated Press, at least 370 companies have won 14,000 exemptions from the steel and aluminum tariffs imposed last year; 27,000 exemptions are pending. The Chinese government has also accepted applications for exemptions to retaliatory tariffs on goods flowing into the country.

2. Reassess the big picture. There was a time when the calculations driving low-cost country sourcing were relatively simple. The difference in labor costs between the United States and China commanded attention. But as companies have learned, long supply chains increase logistical risks, and now political and economic uncertainties complicate the calculations necessary to build a smart sourcing strategy.

If you haven’t already done it, reassess your overall sourcing strategies by taking a deeper dive into your complete supply chain, from raw materials to your finished product. It is surprising what you may find. There could be tariffs on items deep in your supply chain or other risks that could generate unexpected costs.

As you look at the bigger picture, consider four areas:

Operational efficiency—constantly improving processes to reduce the cost of purchasing and managing your supply chains. An internal improvement, for example, could offset the new cost of a tariff.

Products and processes—seeking the best overall value of each purchase incorporating total landed costs, function, and risk through every tier of the supply chain.

Supplier relationships—knowing your suppliers and working with those that deliver continuous improvement, innovation, and integrity from their own work and others that supply them.

People—identifying the best skilled team and building a culture that supports them.

3. Learn for the future. Everything changes. Iceland is even losing its ice. Learn from the current situation and consider the steps that will mitigate your future risks—not just from tariffs, but also from the surprises that are certain to lie ahead. Manufacturing companies that raced to China are returning production to the United States by investing in robotics and other innovations. Others are building capacity around the world to keep production closer to emerging markets.

What your organization did yesterday is likely to change tomorrow. So mind the details, look at the big picture, and learn for the future.

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