5 Tips to Minimize Tariff Risks in Your Supply Chain
INSIDE THIS ARTICLE
Recent shifts in global trade policies have brought about a surge in new tariffs, causing substantial volatility across manufacturers’ supply chains. In our conversations with supply chain experts across various industries, we’ve learned that most organizations are trying to understand the financial implications to their business. Moreover, they are reluctant to make any major operational changes due to the uncertainty of what will happen next.
Regardless of the outcome, manufacturers will need to reassess their supply chain strategies to mitigate risks and stay competitive.
UNDERSTANDING THE IMPACT OF TARIFFS ON MANUFACTURING
Tariffs are often imposed to safeguard domestic industries, encourage foreign countries to change their practices, or generate government revenue. Nevertheless, they can have far-reaching consequences for manufacturers and supply chains that rely on imported goods to build complex products.
Key challenges include:
- Increased costs: Tariffs raise the price of imported components and raw materials, leading to higher manufacturing expenses and reduced profit margins. Companies in the consumer electronics and automotive industries are especially vulnerable due to their reliance on aluminum, steel, and semiconductor components from countries like China.
- Fractured supplier relationships: Manufacturers may seek alternate suppliers in regions unaffected by tariffs, potentially losing established infrastructure and severing long-standing relationships. This sudden change could result in performance issues that negatively impact product quality and operations.
- Production bottlenecks: Lower-tiered suppliers are sometimes forced to cut production of critical materials and components due to tariff hikes. This causes shortages in the supply chain, resulting in production delays.
- Regulatory and compliance hurdles: Tariff changes often bring about new trade regulations that impact product development. For instance, changes to certificates of origin, customs declarations, labeling, and other documentation may be necessary depending on the jurisdiction. Regulatory and procurement teams must communicate regularly with supply chain partners and stay abreast of the evolving requirements to ensure compliance.
5 STRATEGIC STEPS TO MITIGATE TARIFF RISKS
Given the operational and financial uncertainties that tariffs can create for your business, here are five steps to help you plan accordingly and mitigate risks.
1. Diversify your supply chain.
Consider sourcing from multiple suppliers across different regions. With access to alternate suppliers, you can pivot quickly in the event of a tariff hike. Several companies, including Apple, are adopting this strategy by moving part of their production from China to countries like Vietnam and India.
2. Control costs.
Renegotiate supply contracts to lock in prices and avoid sudden rate increases. Additionally, seek lower-cost alternate parts that meet your requirements. Lastly, avoid expensive mistakes by managing the product record and processes in a single source of truth.
3. Recalculate your inventory buffers.
Adjust your safety stocks of critical parts and materials to hedge the risk of production delays and pricing spikes.
4. Shift production locations closer to home.
Reshoring or nearshoring production reduces your dependency on countries that are subject to high tariffs, geopolitical instability, and other unforeseen events, resulting in enhanced supply chain resilience.
5. Get to know your supply chain partners.
Today’s multitiered supply chains are highly complex. Because original equipment manufacturers (OEMs) communicate primarily with their immediate tier 1 suppliers, there’s typically a lack of visibility into subsequent tier supplier vulnerabilities. Changes to one region can quickly proliferate across multiple tiers without being immediately noticeable. To effectively manage the impact of tariffs, OEMs must gain a clear understanding of how each of their suppliers and contract manufacturers source materials, where critical components and materials originate, and which partners are most at risk. By extending collaboration across all tiers of the supply chain, companies get to know each supplier’s unique challenges.
Many product companies are adopting digital technologies to enhance visibility and lessen the impact of supply chain disruptions such as tariffs. Using modern Cloud PLM and QMS solutions like Arena helps mitigate risks by offering supply chain intelligence and facilitating secure, real-time collaboration between internal teams and external partners.
Linking the product record and associated supplier information in Arena gives product teams a comprehensive view of critical supply chain activities that impact their design and production schedules. With access to real-time component information including alternative parts, compliance certificates, lifecycle status, and country of origin, organizations can build more flexibility into their bills of materials (BOMs) and approved manufacturer lists (AMLs) and enhance supply chain resiliency.
Continuous BOM scans and automatic risk alerts notify product teams of supply chain shifts. In turn, they can work proactively with suppliers to implement cost-saving measures in response to new tariffs. This might involve changing product specifications or sourcing alternative parts.
Ultimately, the ability to connect anytime and anywhere with supply chain partners from a single trusted source and gain actionable insights allows for better decision-making and more agile sourcing strategies.
Monitor Tariff and EOL Impacts With Arena Supply Chain Intelligence (SCI)
Arena SCI helps product teams proactively address supply chain risks like tariffs, end-of-life (EOL) notices, and part obsolescence. With AI-driven insights and real-time BOM monitoring, SCI recommends alternative components early—helping organizations avoid delays, last-time buys, and compliance gaps. To learn more, read this solution brief.
NAVIGATE TARIFF UNCERTAINTIES WITH CONFIDENCE
Looming tariffs will no doubt create disruption and uncertainty for your business. However, managing what you can by using the right technology will empower your organization to mitigate cost impacts and keep operations running.
Ann McGuire