In the face of ongoing tariff wars and geopolitical tensions, businesses must adopt resilient and adaptable supply chain strategies to remain sustainable and hopefully thrive; however, there are key factors to consider
Following the November election, global trade professionals and businesses expected changes to take place related to global trade and tariffs, simply because there were among the key pillars of President Trump’s campaign. Fast forward to Trump’s inauguration and beyond, and it can feel that not a day that goes by without changes to tariff and trade. Running a business (profitably or simply trying to stay afloat) can be a challenge, and for some, this may have the whiff of the disruption caused by the global pandemic just five years ago.
Regardless, business must go on — and for the makers of products and the providers of services that require goods to move across borders, sleepless nights maybe more a reality than it should.
Indeed, the impact of tariff wars on supply chains is profound. Increased tariffs raise the cost of imported goods, forcing businesses to decide whether they can or would absorb the costs or pass them on to consumers — and either option can lead to a reduction in profit margins. The Thomson Reuters Institute’s 2024 Global Trade Report underscores the complexities and concerns around corporate supply chains. The report noted that supply chain disruptions remained a constant concern among trading professionals surveyed, and the complexities of managing these problems were significant. And for the majority of the survey respondents, it was their number one strategic priority.
Strategies for readying your supply chain
The coming months and years may continue to be a wild ride, and strategies such as burying one’s head in metaphoric sand isn’t an option (or at least not a good one) or hoping things will soon settle down (it very well might, but business cannot afford to stop and have a wait-and-see moment).
To navigate the challenges of global trade today and the future, proactive strategies that enhance supply chain resilience and flexibility is necessary. And while most business strategies include considerations of such external factors such as geopolitical tensions and trade wars, these concerns necessitate strategies that must be somewhat malleable. As businesses now attempt to successfully navigate the current uncertainty, there are several main considerations for managing supply chains, including:
Diversification of suppliers — One of the most effective ways to mitigate the risks of tariff wars is to diversify your supplier base. By sourcing from multiple countries, businesses can reduce their vulnerability to trade disruptions in any single region. For example, consider suppliers that are in countries with lower tariffs or aren’t subject to tariffs at all.
Go local — On-shore whenever possible. For many businesses, the cost of using locally sourced materials has made it less feasible to use those materials; however, it is worth comparing local sourcing to the rising cost of continuing to get materials abroad amid tariffs disputes.
Agility & flexibility — Having supply chain suppliers that can be flexibility is critical. Suppliers that are amendable to renegotiating contracts, possible absorbing some of the costs resulting from tariffs, and more should be favored. Whenever possible, consider pre-ordering or stocking up on materials and products in advance of possible tariffs increases. Further, if possible, consider if your products could be redesigned or altered to utilize different materials.
Collaboration & partnerships — Unusual times call for unusual alliances. Having strong relationship with suppliers, logistics providers, and even competitors can increase supply chain resilience. Collaborative efforts can lead to shared resources, combined knowledge, and further innovations that may improve overall supply chain performance.
Investment in technology — Leveraging technology is critical for supply chain management. Using technologies that can provide advanced analytics can assist with predicting and providing models for navigating tariffs and working with suppliers. The rapid speed of changes in tariff policies and regulations requires utilizing technology that can assist with risk management strategy, which often involves identifying potential risks, assessing their impact, and implementing contingency plans. Scenario-planning and stress-testing can help businesses prepare for various trade war scenarios and ensure continuity of operations. Businesses also need technologies that provide real-time government alerts to stay current on trade-classification changes and regulatory trends as well.
Conclusion
In this foreseeable future, it is clear that the global trade environment will continue to present challenges. Tariff wars and protectionist policies are likely to persist, making it essential for businesses to adopt resilient and adaptable supply chain strategies. In a time of tariff wars and increasing complexity, readiness is important. Businesses that invest in supply chain resilience and adaptability will be better equipped to overcome the challenges ahead.
You can find more about how companies can best manage their supply chains here
