Mitigating tariff impacts the digital supply chain advantage

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Mitigating tariff impacts: the digital supply chain advantage

  • Mitigating tariff impacts the digital supply chain advantage
2 minute read

The eruption of the trade war and subsequent shifts in tariffs has thrown organizations into disarray, and has them scrambling to understand the effects of tariffs on their businesses and supply chains.

Even a tariff pause brings little relief, as substantial tariffs remain in place and will likely continue to ebb and flow for the foreseeable future.

Global supply chains are the “ground zero” of the impact, rattling importers, exporters and domestic producers alike. Companies importing and exporting goods, be it finished retail products, manufacturing components or materials, now face substantial cost and price pressures that squeeze margins and force difficult pricing, sourcing, operations and distribution decisions. These decisions must be made quickly as the full impact of these tariffs begins to cascade through the global trade network.

The impact varies dramatically by industry and region, and ongoing trade negotiations will complicate matters as tariffs wax and wane between nations. Automotive manufacturers are particularly hard hit by the Canada-Mexico tariffs, and many are already announcing that they expect significant cost increases.

Industrial manufacturers face mounting pressure to reshore or diversify suppliers, with many accelerating plans to restructure their supplier networks. High-tech companies, having already begun shifting production from China following earlier trade tensions, now need to reconsider their Mexico operations and continue diversifying critical mineral sourcing. The life sciences industry, which is heavily dependent on global supply chains, faces potential shortages as raw material costs increase to levels that sometimes make production financially unfeasible.

Crucial to navigating this environment is the need for global companies to make operational decisions around pricing, sourcing, production, mix, operations and distribution that reflect these outside-in factors and forces that are beyond a company’s control. Only by taking these dynamics into account will companies be able to effectively mitigate the effects of tariffs and support efficiency and sustained growth.

While companies can’t control trade policy, they can dramatically improve the outcome by ensuring their supply chain technology are up to this challenge.

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The data challenge

Traditional supply chains operate with significant information gaps due to disconnected systems and disparate data. They’re managed with several point solutions serving supply chain functions, such as warehouse, transportation and order management.

The result? Delayed and often outdated information hampers decision-making, slows response times, increases safety stock and raises hidden costs. In an environment where tariffs can suddenly alter the economics of established suppliers, supply routes, production, operations and distribution, these problems become even more acute.

Networks: the path to resilience in an era of “tariff whiplash”

Digital networks that connect all supply chain participants in real time offer a powerful solution to traditional point systems. These platforms function more like social networks, where businesses join once and can easily connect to multiple network partners through the virtual network rather than via onerous new physical implementations and connections. This approach transforms supply chain management in ways particularly valuable for tariff mitigation where there’s so much volatility and uncertainty.

1. Supply chain mapping and multi-tier visibility

Digital supply chain networks enable the creation of a comprehensive digital twin of your physical supply network. This goes beyond traditional visibility by mapping not just your immediate suppliers (tier 1) but also their suppliers (tier 2) and beyond. This multi-tier visibility is crucial for understanding tariff vulnerabilities that may exist deep in your supply chain.

For example, you might source from a domestic supplier that doesn’t incur a tariff. However, if that supplier’s components come from an international supplier affected by tariffs, your costs will still increase as the effects of the tariff cascade through the supply chain. This impact may be delayed, but any trading partner will be unlikely to bear the added cost indefinitely.

With network-based visibility across tiers, you can identify these hidden dependencies before they impact your business. This same “deep” network visibility proves invaluable during other disruptions such as natural disasters and geopolitical events. It allows you to see upstream and downstream bottlenecks, changes and disruptions sooner so you can develop alternative plans to mitigate the risk or, in many cases, capitalize on new opportunities.

 

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2. Improved scenario planning and adaptation

With accurate, comprehensive and current data, companies can run meaningful what-if scenarios to understand the cost implications of different sourcing, distribution and pricing options. Better scenario planning allows you to evaluate what happens if you change suppliers or reroute shipments through other countries and how that impacts costs, lead times, service levels and other factors. This capability is crucial when deciding how to respond to tariff changes, whether it’s accelerating shipments before implementation dates, reconfiguring supply networks afterward, or targeting and distributing to entirely new, more profitable markets.

3. Reduce uncertainty, inventory and capacity requirements

Inventory optimization becomes particularly valuable when tariffs increase carrying costs. Real-time data throughout the supply chain allows you to reduce many safety stocks that buffer against uncertainty. This directly translates to lower inventory requirements, which frees up capital, reduces storage costs, and lowers the risk of product discounting and obsolescence, thus, protecting profitability. Likewise, removing latency from systems and connecting all trading partners enables better visibility and insight into actual demand, and into supply and logistics capacity, so capacity and resources can be optimally aligned to satisfying the most profitable demand cost-effectively.

4. Rapid supply chain reconfiguration

It traditionally takes three to five years to reconfigure a supply chain, which is far too slow in today’s rapidly evolving geopolitical, regulatory and tariff environment. However, with a network approach, you connect once to the network, then connecting with other network participants is virtual and typically doesn’t require additional implementations. In addition, thousands of organizations are already connected, so you can reconfigure supplier relationships by identifying and connecting with new suppliers or distributors in more favorable regions much faster. This enables you to tightly couple supply to demand, consider these myriad of factors, and look at the total costs to serve in decision-making.

Beyond avoiding costs

The benefits of a digital supply chain solution extend beyond just tariff avoidance. Companies using integrated digital networks gain a holistic view and fundamental advantages across almost all aspects of their business.

  • Lower sourcing, production and transportation costs: With better insight and decisions around demand, sourcing and logistics, companies can choose the best options based on a comprehensive strategy, to minimize costs while serving the most profitable markets.
  • Reduced administrative overhead: Unified networks streamline trade compliance documentation and automate many labor-intensive import/export and scheduling tasks.
  • Better matching of supply to demand: Integrated planning helps synchronize supply to shifting demand, thus, reducing waste throughout the network and offsetting tariff-related cost increases.

 

While the financial impact of tariffs cannot be eliminated entirely, companies that invest in digital supply chain technologies can incorporate tariffs and other policies and factors into strategy and planning, better match supply to demand to boost sales, and reduce costs across the supply chain, thus, mitigating the impact of change. By having their partners on the network, they gain better insight into their supply chain costs and can respond earlier and faster to shifting conditions. The end-to-end supply chain simultaneously gains enhanced efficiency, speed, agility and resilience to adapt to whatever challenges emerge, whether trade-related or otherwise.

As global trade continues to face disruption and be buffeted by constant change and uncertainty, the companies that thrive will be those that can see clearly, choose wisely, respond quickly and adapt continuously — capabilities that only fully connected supply chain networks can provide.