With the U.S. imposing tariffs on hundreds of billions of dollars in goods that are entering the country—and with some of those countries now imposing their own retaliatory surcharges—the trade environment is getting increasingly difficult for procurement officials to navigate.
The situation doesn’t appear to be letting up any time soon, which means striking the balance between strategic buying decisions and cost-reduction initiatives could get even trickier.
“The most immediate and obvious impact of a tariff on steel and aluminum imports is the increased price of those commodities,” supply chain software provider IndustryStar Solutions notes in How to Prepare for Supply Chain Disruption Caused by Tariffs.
For example, the major automakers like Toyota, Ford, and Honda have all released statements that amount to the same warning: Increased cost of raw materials will make vehicles more expensive to the consumer. “From an overall cost perspective, the impact across the board is straightforward,” the company notes, adding, “products are set to become more expensive in a relatively short period of time.”
5 Steps to Take Right Now
To offset the surcharges and any price hikes brought on by the tariff wars, smart procurement professionals are seeking out innovative ways to shave costs and streamline their companies’ supply chains. Here are five ways to do just that:
- Know exactly what goods you are importing from where. Then, cross-reference that intelligence with the constantly changing list of goods subject to U.S., Chinese, European, and Canadian tariffs (as well as retaliatory tariffs). “This exercise, while complicated, can be streamlined with technology,” Brian Peccarelli points out in Tariff Turmoil Spurs Need for Rigorous Vendor Screening. “It should give companies a solid sense of the financial impact of the new tariffs on their total shipping costs. Any significant variation from that estimate would be a potential red flag for the company to investigate further.”
- Check in on, and strengthen, relationships with backup suppliers. “If U.S. trade policies move in the direction of protecting domestic industries from foreign goods, it means suppliers will likely be dealing with new levels of demand they may not be prepared for,” IndustryStar notes. “Distributing this burden to backup suppliers and ensuring they’re ready to step in when needed is a good way to mitigate risk.”
- Get a handle on your risk exposure. All supply chains could benefit from an extra boost of visibility, or the knowledge of exactly where the goods are in the supply chain at any given time. “To shield their businesses from uncertain trade risks, procurement organizations need to take a proactive approach,” Spend Matters reports in How to Proactively Defend Against Supply Chain Risks from Section 232 and 301 Tariffs. This means being able to quickly and comprehensively visualize your supply chain, measure risk at all levels, and then make preventative decisions with both efficiency and accuracy. Resilinc’s RiskShield product, for example, helps procurement visualize the end-to-end supply chains using geographic maps and network graphs. “This allows companies to consolidate silo’ed corporate data,” Spend Matters concludes, “thus creating a single version of the truth about a business’ risk exposure.”
- Always have a “Plan B.” In Tariffs’ Impact on Procurement and Supply Chain: Communication Is Key to Combating Surcharges, Corcentric’s Matt Clark tells buyers to closely review the list of products and materials they purchase that could be affected by tariffs. “Procurement departments can’t prevent the impact of tariffs, but they can anticipate what’s going to be affected, and look into alternative sources of product,” write Clark, who himself has seen increases from 15% to 40% on products and materials affected by tariff surcharges. “Some of the tariffs are based on support items that go into the final product,” he adds. “Procurement must know who supplies its suppliers. Only then can it can anticipate any disruptions or surcharges, and put backup suppliers in place.”
- Watch commodity prices closely. Keep a watchful eye on commodity prices and how they impact your company’s sourcing, quality, and supply continuity. Then, share that knowledge with other departments in your organization with the goal of getting everyone onboard (and in the know) with good sourcing strategies. “By working hand-in-hand with the commercial and finance teams—and being involved in all strategic discussions that take place within the business,” Shailesh Bhadauria writes in How Tariff-Proof Is Your Supply Chain Strategy?, “procurement can respond and advise depending on how global trade shapes up in the future.”
By stepping up their awareness of exactly where goods are being sourced from—and by including Tier 1, 2, and 3 suppliers in the conversation—procurement professionals can effectively start planning for potential trade risks now instead of waiting until those risks turn into higher costs and other disadvantages. With no end in sight to the tariff wars, now is the time to make these and other proactive moves to shore up the world’s electronics supply chains and keep them running smoothly.