With tariffs already in place on products such as aluminum, steel and fabrics, procurement departments for companies in transportation, textiles and manufacturing should be looking to adopt evolved relationships with their supply-chain managers, to lessen the blow of these new outside costs. Procurement and supply-chain units need to be in constant communication, in order to deal with the new tariffs and ensure that the business is prepared for what’s to come.
Aside from developing an understanding of each department’s business, the procurement and supply-chain functions should focus on the following items to combat these new costs:
- Correspond on topics such as backup supplies and suppliers to circumvent China-based tariffs,
- Discuss the potential to stock up on select inventory to receive bulk discounts or purchase items before tariffs are in place, and
- Establish sourcing optimization by leveraging procurement and financing automated solutions.
Backup Supplies and Suppliers
Every company should be looking into a list of products and materials it purchases that could be affected by tariffs. Procurement departments can’t prevent the impact of tariffs, but they can anticipate what’s going to be affected, and look into alternative sources of product. I’ve personally seen increases from 15 to 40 percent on products and materials affected by tariff surcharges. Some of the tariffs are based on support items that go into the final product.
Procurement must know who supplies its suppliers. Only then can it can anticipate any disruptions or surcharges, and put backup suppliers in place.
A number of questions must be answered when seeking to secure backup suppliers. Are they already contracted? Do we need to start speaking with them now, knowing they might only be used as an alternative? Would these alternative suppliers also be impacted by the same price increases, or potential increases?
If the procurement department anticipates a price increase in products or materials, it should look into stocking up on inventory to receive bulk discounts before incurring tariff surcharges.
Changing the source of your suppliers is another option that has to be considered. This is easier said than done, of course. It takes resources and costs to switch suppliers and fully understand their supply chains.
Most corporations and global organizations have partnered with providers of automated solutions to streamline the process of supplier selection. The complexities arising from new tariffs require procurement teams to take a more sophisticated approach to analyzing spend and achieving sustainable cost savings.
Digital sourcing gives companies enhanced visibility into their supply chains. They’re able to audit incoming invoices to ensure that suppliers aren’t adding last-minute surcharges as a result of tariffs. By working with a provider of automated solutions for procurement and financing, companies can flag surcharges that weren’t communicated, and resolve disputes.
Tariffs promise to have an impact on materials and goods, with some being hit harder than others. It’s up to procurement and supply-chain management teams to make sure they have the best possible sourcing strategies. With good communication and transparency, businesses can anticipate price changes.
Procurement professionals today must be keenly aware of their supply chains. They need to anticipate changes so they’re better prepared to renegotiate, find alternative sourcing, and perhaps approach stakeholders to discuss budget increases to offset surcharges on products or materials.
All supply-chain partners are in the same boat: they don’t know exactly when, where, or how these tariffs will be enacted and affect them. By working together, they can anticipate changes and work to achieve cost savings and efficiencies.
Matt Clark is president and chief operating officer of Corcentric.