Assessing the Risk of Changing Tariffs
When countries negotiate or renegotiate trade agreements, it can have a substantial impact on companies procuring goods or parts from outside of their own country. In recent days, the strongest visibility of this is the USA renegotiating agreements with Canada, Mexico, the EU and China.
Elections around the globe are frequent every year. In the EU alone, 2018 brings more than 20 elections. Africa has substantially more than that. For fun, check out the following page on Wikipedia showing some of the election schedule for 2018 around the world. With each change in leadership, the direction of a country could change substantially.
Given recent news coverage, we have also learned that leaders can tariff and counter-tariff each other with about 2 weeks of notice before tariffs are in effect. That’s not much time for companies to react so forward risk planning is in order. A wait-and-see approach could be risky.
So, what should companies do to reduce the risk of tariffs impacting prices and potentially holding up your shipments at border crossings?
First, a review of your supplier base is in order. Build a quick dashboard showing where your suppliers are located on a map, how much you spend with each of them and how long it takes to receive their shipments.
Second, flag the suppliers that are sending you operationally-critical parts / supplies. How many of those are outside of your own country? Operationally-critical suppliers are the ones that, in the event they cannot provide goods to you, your own company would have to cease operations.
Review your contracts for suppliers outside of the country, with a focus on the operationally-critical ones first.
Can you locate an in-country supplier to provide the same goods at a competitive price? Are your out-of-country suppliers willing to provide inventory on consignment so you can carry more safety stock to address possible border crossing delays?
The details of trade agreements have become highly volatile across the globe and individual companies and industries are feeling the impact of these changes. Sooner rather than later, is the time to assess your own supplier risk to buffer it as much as possible from factors that can change tomorrow.
Tracey Smith is a recognized analytics expert, speaker, author. She is the President of Numerical Insights LLC, a boutique analytics firm addressing the needs of businesses large and small. If you would like to learn more, please visit www.numericalinsights.com or contact Tracey Smith through LinkedIn. You can check out her books on her Amazon Author Page.