ACT NOW: COST & RISK MITIGATION
Particularly in the short term, the response to tariffs will be focused on releasing cash, protecting margin, and ensuring smooth operations. Strategies will range from reviewing contract terms to collaborative supplier engagement efforts and a multitude of activities in between. We have highlighted four key strategies below.
- SPEND IMPACT ANALYSIS: Initial exploration of tariff impact (first order impact and beyond) on key sourcing channels, identifying key financial impact areas and sourcing concentration risks, including the effect of additional tariffs and changes to the effective tariff rate.
- SUPPLIER/CONTRACT IMPACT ANALYSIS: Review key risk supplier contract terms, such as price adjustment, termination, compliance, force majeure, risk allocation, etc., especially in cases where reciprocal tariffs or tariff increases may influence the contract’s viability.
- RAPID COST REDUCTION: Identify opportunities to reduce operating costs across the entire business, mitigate supplier and customer buy price increases, and protect margins in light of rising consumer prices.
- SUPPLY DIVERSIFICATION/AGILITY: Seek out alternative supply sources in lower-risk tariff locations and seek to load balance supply, allowing for volume switching if required. This is especially important when adapting to the impact of tariffs from multiple trading partners.
PLAN NOW: EMBEDDING RESILIENCE
Beyond the day-to-day, businesses must consider the future and the potential of a post-globalization landscape devoid of free trade. What must be in place for you to survive and remain profitable? What structural changes need to be made to your operations? What does your newly optimized production footprint look like? And how will you embed resilience?
- SPECIFICATION/RANGE OPTIMIZATION: Review product specifications and component parts to substitute or reduce dependencies on high-cost/tariff parts or raw materials, with consideration for the average tariff rates applied to different categories.
- SUPPLY CHANGE REWIRING: Undertake a longer-term strategic review of product supply chains and procurement category expenditure to reduce cost and risk and promote innovation/digital, especially in relation to ongoing tariff increases and shifting trade policy.
- RIGHT SHORING – RESHORING/FRIENDSHORING:Support business through significant make/buy or onshoring investment decisions and expenditure programs to open up markets and mitigate exposure to tariffs on imports.
- DATA AND ORCHESTRATION FOR AGILITY: Embedding enhanced data for decisioning and using orchestration tech to quickly adjust approaches or roll out new policy, process, or supply agreements, while monitoring volatility in financial markets and tracking economic impacts.
While the tariff landscape presents great uncertainty and unpredictability, those proactively building agility and robustness into supply chains will have the resilience to weather the storm.
Proxima is a specialist procurement and supply chain consultancy comprised of experts in achieving value for money and managing risk. Spanning cost and capability transformation, we help businesses overcome challenges by being ever-present in the market, offering best-in-class solutions, and driving short and long-term results. Our people are hands-on and action-focused.
Contact us today to learn more about understanding your tariff exposure, finding alternate or new supply sources, driving underlying savings, and implementing long-term improvement.
