Many natural and human-made disasters can affect a global supply chain, including everything from typhoons to container ship fires. The imposition of tariffs is yet another situation that can lead to increased costs, bottlenecks, and even delivery stoppages. Trade wars that result in tariffs can, for example, disrupt the supply chains of Asia-based global entities such as Taiwan-headquartered Zowie Technology Corporation.
What are Tariffs?
In short, a tariff is a tax placed on goods when they are imported into a nation. It is generally paid by the importer when items cross the border. The amount of a tariff depends on the particular product, the countries involved, and whether they have customs agreements with each other. In recent years, the U.S. and China have been in a trade war that has resulted in tariffs on products such as some of the components electronics manufacturers require.
When tariffs are imposed or raised, businesses have three options. They can absorb the cost, minimizing the effects on their customers but lowering their profit margin. They can also raise the price of the end product and pass it onto their customers, saving money but potentially alienating end users. Finally, they can make adjustments to the supply chain to minimize or eliminate the financial effects. This can be accomplished by changing suppliers, rerouting products, or moving their operations to another region or country.
Supply Chain Flexibility:
Developing a network that is as transparent and flexible as possible has many advantages, not only for the immediate situation but also stretching into the future. Once you map all facets of your chain, including secondary and tertiary vendors, you can identify where the risks lie and even detect potential alternatives that can be tapped when issues like tariffs arise. Flexibility enables you to pivot quickly in response to not just trade war-related factors but also to other unpredictable events. Although being agile can cost you in terms of logistics and financial resources, it is one of the best long-term approaches when preparing for disasters.
Preparedness is Key:
The most important priority in dealing with tariffs is to plan ahead. Don’t wait for costs to skyrocket before you begin to scramble for a response. Instead, choose a diverse team of stakeholders to become your emergency preparedness team. Don’t just confer a title upon them; get buy-in from management that provides them with the time and resources to make plans and carry them out.
Because you already know the effects that added import fees can have on your costs and even on delivery times, your team should take preemptive action. Scour your network for alternate components and raw materials suppliers should the monetary burden of import taxes become too arduous. Explore the pros and cons of relocation and stockpiling, and ensure that all lines of communication among partners, vendors, and customers are clear.
Unfortunately, there is little if anything that you can do to stop tariffs from happening. Your only recourse is careful forethought and planning, transparency in your network, and fostering a supply chain that is as flexible and nimble as possible.