Navigating tariff turbulence

With changes in tariffs putting global markets on edge, now is the time for businesses to gain an understanding of such regulations amidst other supply chain complexities. Given the intricacies of tariff modeling, supply chain transparency remains at the forefront to equip organizations with the information needed for fast decision making. 

But how can an organization make sense of its data for such transparency to be gained? Knowing one solution certainly does not fit all, here is a high-level three-step approach that you can tailor best to develop a plan that best suits your organization. In steps one and two, 4flow can help you identify data centers, requirements and necessary teams. In the final step, step three, we can help you devise and implement a strategy. 

Step 1: Supply chain modeling: gathering essential data

In this first step, your organization wants to collect and model various data points to give you an understanding of the overall impact of tariffs on your supply chain. The goal is to develop a measurable baseline that creates an as-is picture of raw material, transportation and logistics flows and spending. This baseline includes identifying parts impacted by tariffs based on country of origin and Harmonized Tariff Schedule (HTS) codes, also known as Combined Nomenclature codes in the European Union.

Examples of data collected at this stage include:

• Bill of materials: identifying all raw materials used in production.
• Supplier database: locating suppliers and understanding their geographical distribution.
• Import/export data: including transportation and customs documents, such as those from Customs and Border Patrol (CBP).
• Material master and sales data: determining the country of origin and the HTS code for each product.

The HTS code is crucial as it dictates tariff rates and regulations for products entering a country. The CBP code maintains an extensive schedule of these codes, which must be updated whenever tariff changes occur.

Step 2: Tariff impact assessment

Once your organization has completed tariff modeling you are now ready to conduct a thorough business impact assessment. 

This assessment is essential to understand the financial implications of tariffs and takes a look at the following:

• Applying a new tariff schedule and cost calculations: assessing the impact on unit costs by product line and/or region and organization overall.
• Customer pricing implications: evaluating how tariffs affect customer pricing and conducting sensitivity analyses to measure expected margins under different scenarios.

Step 3: Mitigation strategy development 

Once the impact on your business is assessed, it is time to develop a mitigation strategy. 4flow works with your organization and its key stakeholders to come up with the best solution. Strategic approaches may include: 

• Cost redistribution: directly transferring a (reasonable) percentage of tariff costs to the end consumer.
• Drawback programs: initiatives to reclaim duties or tariffs paid.
• Sourcing strategies: supplier negotiations or diversification; nearshoring or leveraging Free Trade Agreements (FTAs), such as the United States Canada Mexico Agreement (USMCA).
• Network design: developing and evaluating alternative transportation networks to cope with shifting inbound and outbound routes. 

By gathering essential data, exploring pricing options, conducting business impact assessments and ensuring stakeholder involvement, 4flow can support you and your organization develop a viable strategy to navigate tariff regulations, gain transparency and maintain a competitive edge.