Tariffs already have major companies like Harley Davidson and Williams-Sonoma moving production out of China.
While trade talks between China and the U.S. are going well, and there's hope some of these tariffs may be pulled back, duties on $200 billion worth of goods are set to increase from 10 percent to 25 percent in March.
Companies have been and should be preparing for all possible outcomes, especially worst-case scenarios. But tariffs — a great reminder to re-evaluate risk management plans — are not the only reason to continually analyze costs and prepare for potential increases.
Costs to consider
Tariffs are just one of many elements that can impact price. When getting products from overseas or even closer to home there are transportation costs, customs fees, security fees and insurance costs. What if one or all of these costs increased? What if your industry was subject to new regulations?
Cost analysis involves looking at price changes across the board and then determining the tipping point. Tariffs alone may not be reason to reshore — some companies facing tariffs have found China to be the cheapest option for sourcing even with 25 percent tariffs — but combined with a surge in fuel prices or fees, it may pay to find a new supplier elsewhere.
And even more costs to consider
If the worst-case scenario plan is to shift sourcing, what costs would be associated with the transition? Do goods and machinery have to be physically moved? What is the cost of time and resources spent finding and vetting new suppliers? Would you have to change shippers and warehouses to accommodate the shift?
The value of an existing relationship with suppliers, transporters and warehousers doesn’t come with a dollar amount to factor in, but should be considered when assessing the possibilities. Reliability and good relationships could be resulting in considerable but unseen savings.
If it’s decided that a move is the best option, a plan should also be in place for the most cost-effective transition. Maybe that means slowly moving production to avoid a loss of supply while the new producer acclimates to your processes.
The combinations involved in analyzing costs may seem endless and coming up with a comprehensive plan for what do i the event of any and all scenarios will, of course, come at a cost. But dedicating resources to a risk management plan now will help you make thoughtful and cost effective decisions should unexpected fees or
challenges arise. And thinking about potential obstacles now, means spending less time finding your way around them later.