Navigating Vulnerabilities and Tariff Impact with Supply Chain Resiliency
By Lisa Anderson
Since tariffs went into effect, supply chain vulnerabilities have been exposed. We are in a global supply chain with wildly varying levels of risk and exposure depending on the country of origin, product composition and each specific company’s strategy. The most resilient and innovative will have more opportunities than ever before, whereas the dependent and slow to react will struggle in the decades to come.
Tariffs Expose Supply Chain Vulnerabilities
When the global supply chain seemed to chug along normally, companies looked for a low-cost supplier that could deliver close to their expected timetable, no matter their location or risk level in the world. The pandemic exposed cracks in this strategy as companies realized dependence on China could cut off supplies with global events or country-specific strategies such as zero COVID. In recent years, major disruptions such as attacks on commercial ships in the Suez Canal by Houthi rebels and the flooding of a critical IV fluid manufacturing plant during Hurricane Helene have further revealed the serious vulnerabilities in global supply chains.
Tariffs were the “straw that broke the camel’s back” as not only did they threaten significant cost increases, but they also highlighted that China would cut the world off from rare earth minerals, pharmaceuticals and critical materials required for medical and defense as needed. In essence, tariffs provided a significant emotional event to spur action for companies to start addressing the vulnerabilities. Companies that want to succeed in the next decade will focus on resiliency.
The Importance of Supply Chain Resiliency
Proactive companies know their end-to-end supply chain so that they can quickly assess vulnerabilities as disruptions arise. For example, if their tier 3 supplier is dependent on a country involved in a war or impacted by a natural disaster, they must have the flexibility to pivot to an alternate supplier and/or solution. Building resiliency requires the basics, such as backup sources of supply and diversifying their supply base, and it also means they should pursue advanced strategies. For example, according to the Wall Street Journal, auto competitors Ford and Nissan are partnering together to mitigate the impact of tariffs and utilize idle capacity. Collaborating with supply chain partners and competitors can achieve win-win results and greater resiliency.
An industrial equipment manufacturer was concerned about mitigating potential impacts associated with the tariffs. Thus, they turned to their SIOP (Sales Inventory Operations Planning) process to evaluate their demand and supply plans for their global operations. They found an opportunity to better utilize an efficient plant with no tariff impact to absorb additional requirements of an overloaded sister facility, so that the facility could prepare to take on additional volume from its Mexico facility as needed to reduce the impact of tariffs. In addition, they used their SIOP process to forecast critical materials and components so they could proactively source tariff-exposed materials such as steel and aluminum. These forecasts also allowed them to get ahead of the competition as suppliers’ lead times extended due to tariff impacts.
A building products manufacturer proactively evaluated their exposure to tariffs. In addition to addressing potential down-the-line material supplier impacts, they realized they could have an opportunity since they had already evolved to utilize a U.S. facility with a regional supply chain, whereas the competition was more reliant on tariff-exposed supply chains. Thus, they forecasted potential gains by market and product and evaluated these requirements with their capacities and capabilities. They decided to invest in additional equipment and automation capabilities to scale rapidly to meet business opportunities as they arose. This also gave them the ability to utilize pricing strategies to increase market share.
The Bottom Line
Supply chain disruptions are the new normal. Tariffs are the latest example of a disruption that will spur additional supply chain reconfigurations and disruptions down the line. Successful companies will prioritize resiliency to stay ahead of changing conditions. Proactive and forward-thinking companies will have huge opportunities to grow and expand market share during the next decade, while stagnant companies will decline.
Lisa Anderson is the founder and president of LMA Consulting Group, Inc., a consulting firm that specializes in manufacturing strategy and end-to-end supply chain transformation that maximizes the customer experience and enables profitable, scalable, dramatic business growth.
