In the Same Boat
The new tariffs drive the need for collaboration between procurement and supply chain teams.
By Matt Clark
The recently imposed tariffs on hundreds of billions of dollars on Chinese goods entering the United States have already impacted supply chain teams and procurement departments.
Tariffs on products like aluminum, steel and fabrics have procurement departments and supply chain managers in transportation, textiles and manufacturing changing the nature of their relationships to lessen the blow of these new outside costs. Procurement and supply chain units are recognizing the need for constant communication in maneuvering the new tariffs and ensuring the business is prepared for what is to come.
Aside from understanding each department’s businesses, the procurement and supply chain functions of an organization should work together to implement strategies that require day-to-day communications and help to combat the new costs. These include corresponding on back-up supplies and suppliers to circumvent China-based tariffs, determining the potential to stock up on select inventory to receive bulk discounts or purchase items before tariffs are in place, and establishing source optimization by leveraging procurement and financing automated solutions.
Alternative Supplies and Suppliers
At Corcentric, we’ve seen increases from 15 to 40 percent on products and materials affected by tariff surcharges. Every company should compile a list of products and materials they purchase that could be affected by the tariffs. While procurement departments can’t stop the results of tariffs, they can anticipate which products will be affected and look into the possibility of sourcing alternative materials not affected to determine the possibility of using these goods instead.
Procurement must understand their organization’s supply chain and know who supplies their suppliers. If they understand that, then they can anticipate any disruptions or surcharges and put some back up suppliers in place.
Once a price increase in products or materials is anticipated, procurement and supply chain teams should consider stocking up on inventory to receive bulk discounts before incurring tariff surcharges. An option that is easier said than done, but should be considered, is altering the source of supplies. A change in suppliers requires an investment of various resources, as well as a complete understanding of the supply chain.
Sourcing Optimization
Most corporations and global organizations have partnered with procurement and financing automated solutions providers to streamline and simplify the process of selecting suppliers. Today’s procurement teams face enhanced complexities, like tariff surcharges for example, that require a sophisticated approach to helping them analyze spend and achieve cost savings and sustainable value creation.
With digital sourcing and sourcing optimization benefits provided by these automated solutions partners, companies have enhanced visibility into the supply chain. They are able to audit invoices coming in to make sure suppliers are not adding in surcharges or costs in the invoices at the last minute as a result of tariffs.
Sometimes these surcharges come in and are not properly communicated in a timely manner to the end customer. By working with a procurement and financing automated solutions provider, companies can rely on them to flag surcharges that weren’t communicated and resolve disputes on their behalf.
Tariffs will impact the prices of many materials, and some industries will be hit harder than others. It’s up to the procurement and supply chain management teams to make sure that their communication is on point and they have a set of best strategies and practices for sourcing suppliers. With great communication and transparency, businesses can anticipate price changes.
Procurement professionals must maintain close communications with their supply chain teams to anticipate changes and be better prepared to renegotiate, find an alternate source, and perhaps approach stakeholders to discuss budget increases to offset surcharges in products or materials. All supply chain partners are in the same boat – they don’t know exactly when, where or how these tariffs will be enacted and affect them. By working together, procurement and supply chain departments can anticipate changes and work together to achieve cost savings and efficiencies.
Matt Clark is the president and chief operating officer for Corcentric, a leading provider of procurement and finance solutions that transform how companies purchase, pay and get paid. Corcentric’s procurement, accounts payable and accounts receivable solutions empower companies to spend smarter, optimize cash flow and drive profitability. Clark can be reached at mclark@corcentric.com.