International trade conflict has brought about a global resurgence of tariffs and other trade restrictions. This trend has driven reams of high-level commentary on the macroeconomic effects of these disruptions to existing international commerce flows.
In this blog, we set aside that high-level policy discussion to take a look at the practical business problems created for manufacturers by tariffs—and how technology can be used to respond.
This article draws on interviews with real manufacturing industry clients who are working to ameliorate the effects of trade disruptions on a daily basis. To navigate these problems, manufacturers and distributors need IT to provide forward-looking analytics and technological flexibility in the face of a multi-faceted, dynamic threat.
Tariffs 101: A Multidimensional Threat to Manufacturing Cost Structure
While the specifics of international trade restrictions are quite complex and vary widely from country to country (and industry to industry), they virtually always result in added cost based on country-of-origin. Added costs from direct trade restrictions and reciprocal tariffs can then be exacerbated by currency devaluations undertaken to counteract tariffs.
This added cost can have repercussions for virtually every aspect of manufacturing operations and logistics, particularly for multinational firms that not only source materials and sell products internationally but maintain manufacturing operations across multiple countries.
A concise list of tariff-driven effects for manufacturers includes:
- Final Cost: the most obvious consequence, tariffs can increase the total cost of a manufacturer’s products in international markets. Depending on how a manufacturer’s pricing strategy responds, this added cost will either drive higher final prices (a potential threat to sales) or reduced profit margin.
- Input Cost: in addition to tariffs raising the cost of products’ final sale, they can increase input costs for components and raw materials, effectively placing upward pressure on prices from two fronts.
- Supply Chain Disruption: in practice, manufacturers never want the burden of trade disruptions to fall on their customers or profits margin, creating an acute demand for a response through supply chain management.
- Strategic Uncertainty: manufacturers have had to respond to trade disruption in the past. But the sheer pace of change makes the current environment much more difficult to navigate—calculating the ROI for moving a supply chain in response to a tariff is effectively impossible if it will be disrupted again in a few short years.
To make matters even more challenging for manufacturing decision makers, all of these factors are heavily interrelated. And, with little apparent resolution to the current spate of trade conflict on the horizon, manufacturers are faced with the need to maintain a more agile, responsive stance than ever before.
This need for agility is largely borne by a need for more robust technological infrastructure. For our multinational clients, this task becomes even more complex: different offices use different technology tools, meaning the organization may need to respond differently at different global locations.
Manufacturing companies have always had to think about macroeconomics, trade disruption, and complex international supply chains. But, as one CIO told us, “IT departments suddenly find themselves supporting a timed international chess match instead of a slow-burning game of checkers with years to plan each move.”
In response to tariffs, this CIO’s company is currently exploring shifting product manufacturing for a major Australian client from China to the US—but this potential effort introduces a number of second-order complexities that require a more ambitious technology strategy than ever before to robustly analyze.
IT for a Tariff-Prone Globe: Consequences for Technology Management
Manufacturers need the ability to rapidly respond to tariffs without sacrificing the meticulous strategic planning that efficient international supply chains require. To do so, they need analytics that allow them to analyze the complex consequences of different scenarios and have an optimal response plan ready-for-action.
Effectively, this imperative is pushing a move from descriptive analytics to predictive analytics. For many manufacturers, analytics had largely been confined to evaluating past data to understand historical trends. Today’s environment, however, demands the ability to simulate and evaluate dynamic responses to different supply chain disruptions. Tariffs are rapidly taking predictive analytics from an innovative curiosity to an operational imperative for many firms.
Operationally, this shift puts acute pressure on IT. Many companies quickly finding themselves shifting technological scope from a relatively simple, planning-oriented implementation overseen by a small operational team to a sophisticated analytics solution capable of analyzing complex international supply chains.
This shift in scope and scale of technology requires rapidly adapting technology strategy. If a multinational branch needs a new analytics suite, for instance, IT needs to decide between supporting this need onsite through a module used by other international branches, rolling out a new on-premises or cloud solution, or even developing a custom solution to deal with a niche geographic regulation or requirement.
While the precise challenges can vary, trade-related manufacturing disruptions all place demands on IT to respond more quickly, with deeper knowledge, and more expansive capabilities than ever before.
In our experience, IT support providers like PSGi provide a key role in facilitating the transition to a more powerful technology infrastructure for a post-tariff world. First, by taking on support and administrative workflows, an outside team opens up internal resources to focus on fleshing out analytics to support decision-makers dealing with tariff-related impacts. Second, this transition often requires manufacturers to make far more extensive use of their technology toolkit, employing modules, new tools, or custom analytics packages that may be completely new to the organization.
An impactful support provider has the deep knowledge needed to not only help implement these novel solutions but facilitate the training and knowledge transfer instrumental to ensuring their long-term success. PSGi has the roster and experience necessary to build custom software when necessary for enhancing existing supply chain management solutions or integrating new tools with legacy software.
Continued uncertainty for global supply chains appears set to stretch into the foreseeable future. IT has always played a role in helping organizations become more analytical, more agile, and more competitive, and today’s spate of trade conflict brings the need for this sort of support to the forefront for manufacturers. If the current trend continues, technology infrastructure will be more vital for manufacturers than ever before.