ManufacturingAugust 19, 2019

Managing Supply Chain Risk With Tariff Uncertainties

Risk management is a major factor in effective supply chain management, and…
Avatar Dave Turbide

Risk management is a major factor in effective supply chain management, and the rapidly changing international trade situation is a vivid example of the complexities and challenges that face companies that source overseas, make products or components in foreign countries, or distribute their products in other geographic areas.

Tariffs Can Change the Way You Do Business

China has built a powerful industrial capability that has all but driven out the competition in many product categories. For many companies, if they can get what they need from China, there’s no reason to look anywhere else. Well, suddenly there’s a reason. Today’s climate of rapidly changing tariff impositions between the U.S. and China should be a wake-up call for all companies, even those that do not currently trade between these two countries. Tariffs and trade regulations can and do change, often without notice. If a large number of your components or entire products come from a single country, your supply chain is vulnerable to this kind of international disruption.

The good news is that most companies have begun to recognize the importance of supply chain risk management and are putting risk avoidance and risk mitigation strategies in place. But it takes time and effort to implement these strategies. To move sourcing to another country or geographic area; to set up alternate or secondary sources; to relocate a source to another area where the transportation links are shorter, more responsive or just different; to identify and arrange alternate transportation links – none of these things happens quickly and they all have a cost. So companies must be very careful and methodical in determining the best risk mitigation or avoidance strategy for each part/product and source/route.

What is Your Risk Management Strategy?

For most companies, supply chain risk management is focused on specific suppliers or transportation routes, and that’s perfectly appropriate for implementing a new strategy – step by step and carefully –  to prove the concept and gain experience in working with these kinds of alternatives. Now think about the added difficulty of risk management for an entire country, especially one that is as big a supplier as China… and doing it on-the-fly after conditions have already changed.

In many cases, there is may be no viable alternative and certainly no time to develop one after the change in availability or cost has already happened. Your only recourse may be to continue sourcing the parts/products, at least for the time-being, from the incumbent suppliers and deal with the additional costs as best you can. It helps a great deal to have a comprehensive ERP system in place that can quickly show the impact of the cost or availability changes so you know where to focus your efforts. A system with optimization and simulation capabilities will help identify how best to use all existing resources for the best outcome as things are, and provide “what if” tools to help you explore alternatives.

Supply chain disruptions are a fact of life and companies that don’t plan for them will spend far too much of their time and resources fighting fires while plants sit idle or shipment dates are missed. Even if this current trade wars have no effect on your company, take the current situation as a wake-up call. Plan for disruptions and know what to do to minimize their impact. Even if they never come to pass, rest assured that your time and efforts (and resources) have been well spent.

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