Supply chain executives are always on alert for disruptions. While many aspects of the supply chain became more transparent to consumers as a result of recent high-profile events such as the pandemic, a blocked canal, and extreme weather, disruptions are and always have been a part of the work of supply chain experts.
Tariffs are the next big disruption drawing people’s attention. Tariffs present a unique challenge because they can potentially affect some companies that made what could be considered good business decisions following previous disruptions. Here’s a look at the kinds of impacts tariffs can have, and how companies can use data to help them navigate even the most unexpected changes to the status quo.
A quick overview
The long-threatened tariffs on Mexico and Canada were finally imposed by the United States in early March, before quickly being paused until early April. China has retaliated to the tariffs imposed on it with its own tariffs on American products. The uncertainty around what tariffs will be enforced, when they will take effect, and for how long all contribute to the fact that tariffs are very difficult for supply chain executives to prepare for.
Companies basically face a choice between two options when it comes to tariffs:
- Absorb the extra costs themselves
- Pass the extra costs on to their customers
Uprooting operations from a country that has had tariffs imposed on it is not out of the question, but it is not economically feasible for many organizations.
Solving one problem might create another
During the pandemic, many organizations used the time to take full stock of their supply chains. With all of the turmoil, they were able to identify the weak spots in their procedures and take steps to fix them.
One solution was to commit to “nearshoring,” where organizations made sure they had better access to products or materials by bringing their production closer to home. As a result, organizations that moved their operations to Canada and Mexico are facing tariffs that they might not have been subject to if they hadn’t taken the nearshoring step a few years ago.
The solution for one problem may not end up being a permanent solution. The more an organization knows about its entire operation, though, the better prepared it can be to address potential future issues in a time- and cost-efficient way. The only way for an organization to make sure it is prepared is by being able to use the necessary data.
The role of data
A 2024 survey by McKinsey showed that while supply chain executives feel they have better transparency into their first tier of suppliers, the percentage of those who feel they have visibility into their suppliers beyond that is decreasing.
Source: https://www.mckinsey.com/capabilities/operations/our-insights/supply-chain-risk-survey
Organizations need top-to-bottom transparency for several reasons, including an increasing emphasis on regulatory reporting dealing with issues like sustainability and human rights at all levels of an organization’s supply chain. But it is also important because they need the data that will allow them to make informed decisions when the time comes that they need to make some kind of adjustment.
Analytics can help companies understand just how much of an increased tariff they can take on before they need to raise the price customers are paying. In some cases, the analytics might dictate that a nearby country that is not facing the same type of steep tariff could provide the same product and a simple adjustment can be made. Some coffee makers might be able to make that move, importing coffee from a different Central American country rather than Mexico, for example. When it comes to perishable products that can’t be stocked long-term, though, the equation becomes more difficult.
It is not easy to constantly adjust to seemingly unprecedented event after unprecedented event. Even the most seasoned supply chain executives are facing unique disruptions that they probably haven’t dealt with before. Solving one problem might leave an organization in a position where there are other issues to address. While a company can’t prepare for every eventuality, what it can do is make sure it has the type of data infrastructure in place that allows it to make the necessary decisions when the time comes. Every company has the data that can help them pivot when necessary. The companies that have the opportunity to thrive in the face of adversity are the ones that can use that data to their benefit.
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