Many Forrester clients have asked us how prospective tariffs might impact their supply chain processes and supporting applications.
What Is The Potential Impact Of New Tariffs On Manufacturing?
While there is still a lot to speculate about concerning the wider implications of new tariffs, technology executives and supply chain leaders at US and international manufacturers should:
- Prepare for price increases. A new trade environment might involve increases in raw material costs, or you might reduce factory gate prices to maintain competitiveness in protected markets. You should review the digitization of your commercial relationships and contracts with suppliers, channels, and customers. Understand the impact of tariffs or quotas on terms of service and on price escalation clauses.
- Anticipate challenges in accounting for cost of goods sold. You should review your enterprise resource planning management of landed cost. Will there be more customs duty invoices arriving long after you sell the goods in stock? What does it mean for your calculation of cost of goods sold? How can you show the expected full landed cost to prospective customers on your website? How will your order management route orders to the most tariff-efficient production or shipping locations?
- Incorporate tariff barriers in your supply network planning. You should evaluate the role of smart manufacturing technologies in rebalancing offshore, nearshore, and onshore manufacturing to achieve resilience, sustainability, and cost objectives. Check your ability to support changing global trade compliance requirements. You should be able to automate export compliance with local content regulations within a free trade area, as well as compliance with the EU Supply Chain Act or US Department of Justice denied party lists.
- Rethink your new product introduction strategies. North American and European manufacturers will struggle to match the scale of rivals in developing economies that are targeting mass markets. They should invest in foundation technologies such as product lifecycle management and IT/OT integration as part of their manufacturing operations management support in order to pivot from competing on economies of scale to competing on economies of scope.
Do You Need A Stack For Each Trading Block?
- Conduct a tariff-ready enterprise architecture review. Changing patterns of trade impact sourcing supply chain and production systems that are tracking the origin of raw material or component batches. This also affects sell-side applications such as commerce, CRM, and sales force automation. Given concerns about data sovereignty and protection of critical IP, you might need a stack for each regional trading block. You must map application linkages and workflows for multipolar export and import use cases to ensure that you can survive and thrive in any environment.
Along with my colleagues Paul Miller, Michele Pelino, and Jeffrey Rajamani, I look forward to hearing your viewpoint on how best to flourish in the next four years. In the meantime, please book an inquiry to discuss our research and tools, and look out for our mass customization report with more details on how to pivot to a new age of manufacturing success.
Author George Lawrie is VP and principal analyst at Forrester Research. Related: Read more Forrester guest blogs here.
