Recently I’ve had a number of discussions with company owners and other consultants about Trump’s tariffs. Many companies are wringing their hands due to the sharply increased costs on many commodities associated with the 25% tariffs, and in some cases, the lack of availability of materials. Do these tariffs need to have that big an impact on your company or your customers?
A recent editorial in the Wall Street Journal (My Customers Don’t Pay Trump’s Tariffs – July 1, 2019 p A17), shared the experience of the CEO of a consumer-electronics company that sources 90% of their products from China. Even though his products should have a 25% tariff, the company only experienced a 2% cost increase. How can that be? His purchasing department took a proactive partnership approach to his Chinese suppliers, appealing to their best interests, and got price concessions that all but wiped out the impact of the tariffs.
There are three key elements you can use to mitigate the impact of tariffs on you and your customers:
- Don’t use your buyers for buying! – They should be much more than order executers, they should be managing the supplier relationship.
- Focus on Total Cost Of Ownership – It includes many costs not considered during product development and off-shoring activities.
- Develop partnerships with suppliers – Focus on a few carefully selected suppliers for speed, quality improvement and cost reduction.
A strong supply chain strategy is vital to reduce or even eliminate the impact of the current tariff environment. If you would like a review of your Supply Chain Strategy, give me a call.
Contributed by Rick Pay