Impact of Trump’s Tariffs on the Supply Chain and the Rise of Innovation
One of the major concerns arising from President Donald Trump’s myriad of tariffs revolves around the impact on the supply chain. The new tariffs have compelled businesses to make swift decisions on whether to transfer the cost to customers or shoulder it themselves. A number of businesses have even opted to relocate their manufacturing units to the U.S. to mitigate some of the tariff effects.
The Tariff Impact on Consumer Goods, Manufacturers, and Supply Chain Practitioners
From an external viewpoint, this seems like a double whammy for consumer goods companies, manufacturers, and supply chain practitioners, particularly given that many were just recovering from the massive disruptions caused by the COVID-19 pandemic.
However, one self-described optimist and supply chain expert sees a silver lining to tariffs: innovation. This period of new costs and disruptions could be an excellent time for companies to come up with ways of using better, less costly materials, which could ultimately improve their bottom lines.
Kerim Kfuri, CEO of supply chain and logistics company The Atlas Network, believes that “opportunities through chaos” often arise when things don’t go as planned. The Atlas Network works with over 2,000 suppliers in more than 30 countries and is also Alibaba’s verified supplier.
The Role of Innovation in Navigating Tariff Challenges
According to Kfuri, his company’s role is to reassure people and help businesses navigate through these disruptions with as little impact as possible. This could involve a company deciding to use a new material for a product or its packaging because the previous material has become unavailable or too costly due to tariffs.
An example Kfuri mentioned includes a client during the pandemic who switched materials out of necessity. A paint supplier experiencing difficulties in transporting goods without leakage benefitted from changing to a different packaging material. The company ended up saving costs and expanding their market considerably by using more sustainable materials. As a result, the company was able to emphasize the sustainability aspect of their business which previously wasn’t a consideration.
A tariff-related example involved chipmaking companies exploring alternative materials due to the current tax on copper. In such cases, companies can begin investigating other conductive materials or alternative ways to manufacture their products.
Tariff Mitigation Strategies for Businesses
While there has been a lot of talk about companies reshoring or completely moving their supply chains, that’s not the only solution to navigate through tariffs. Kfuri highlights five different strategies that companies can implement:
- Absorption: Someone along the supply chain absorbs some or all of the cost of the tariff.
- Deferral: This strategy involves delaying when and how tariffs are incurred. This may include timing shipments strategically or utilizing free-trade zones.
- Terms and conditions: Businesses can optimize contract terms and conditions with suppliers to offset the tariff impact. This could include negotiating longer payment periods to aid cash flow.
- Price and cost engineering: Companies can engineer products or processes to reduce costs.
- Alternative supply chains: Companies shift supply chains by switching suppliers or production locations to avoid tariffs.
According to Kfuri, altering the supply chain should be the last resort. The risk of increased costs due to challenges, defects, and disruptions often outweighs the benefits of moving manufacturing locations.
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