Tariff-driven input cost variability is making it challenging for businesses to make decisions on supply chain management, pricing, investments and market opportunities. As a result, many business leaders are making a range of short-term tactical choices while trying to plot a strategy for an uncertain future.
Companies are also coming to grips with the scope and scale of today’s new tariff environment versus what many experienced in 2018, when the United States levied a 25% duty on many goods from China.
It’s important to have a strategy and the right systems in place so you can best prepare your business for the changes in response to tariffs.
Choosing the Right Strategy for Your Business
There are a range of options to consider anytime input costs take an unexpected jump. Usually, some combination of these will be the right strategy, but the exact mix is highly dependent on the unique circumstances of your business.
Your business can:
- Increase prices for customers
- Source goods from new, untested suppliers
- Renegotiate contracts with existing suppliers and contract manufacturers
- Find cost savings in areas such as logistics and inventory management
- Reduce margins, at least temporarily
- Increase domestic sourcing of components and raw materials
- Increase domestic production
Let’s take a closer look at three of the most common tactics.
- Increase prices
Simply raising prices for customers is the most straightforward way to counter higher tariff costs, but few businesses are positioned to fully maintain margins this way. Higher prices could reduce sales volume and ultimately negate the benefits of a price increase. Competitors may also capitalize on the move.
A Yale University study estimated that U.S. households could see a $3,800 loss in purchasing power, on average, under one of the more drastic tariff scenarios. Just as with inflation, buying patterns will typically change to offset at least some of that shortfall. - Supplier renegotiation and diversification
Renegotiating terms with suppliers can help counter tariff costs. Of course, the more business you do with a supplier, the more leverage you may have when renegotiating prices. If one seller isn’t amenable to renegotiation, others might be willing to pick up your business with more attractive terms.
Diversifying your supplier base is also an option to consider. Some businesses are already working to add new suppliers, evaluating the prospective benefits of purchasing goods from companies in countries differently affected by tariffs or where shipping costs may be lower. On the downside, such an exercise means spending the resources to conduct due diligence, hammer out specifics and terms and implement quality control measures. New suppliers also represent new risks. - Reshoring production and sourcing
Increasing domestic production, inventory holding, and raw material sourcing and adding jobs are prime objectives of U.S. tariff strategy. While many U.S. manufacturers see benefits in reshoring, they also recognize that, depending on the goods in question, reshoring is a complex and capital-intensive initiative that can take years.
Tariffs would have to remain in place for the long haul for those reshoring investments to pay off. That’s far from predictable, which may make reshoring too risky for suppliers who could find themselves paying higher costs for labor, insurance, real estate and regulatory compliance — even as tariff rollbacks make offshore outsourcing economically attractive once again.
Turn to Data
Given the turbulence, how can businesses find the optimal way forward? Regardless of business model or industry, having the right data, tools and insights at your fingertips will help you make better, more data-driven decisions.
Devising a tariff strategy requires assessing many complex and fast-changing dynamics. It means aggregating and analyzing data to assess various scenarios and then charting a path forward. That’s a tall order for companies that lack the ability to precisely track the landed cost of goods sold, visibility to supply chains or the tools to perform repeatable scenario analysis.
Given the profound implications new tariffs pose to businesses, a robust and sophisticated ERP system can prove highly valuable.
How NetSuite Helps You Navigate Tariffs
NetSuite can help companies navigate today’s volatile tariff environment with speed and precision, and it’s invaluable for making longer-term strategic decisions if tariffs persist. NetSuite and supply chain management software gives companies the visibility and control needed to:
- Understand the total landed cost implications and other input variables of new tariffs
- Model what-if scenarios of different cost and pricing conditions
- More effectively manage the supply chain, from procurement to fulfillment
Total Landed Cost Calculations
Total landed cost is the sum of all costs associated with a product reaching the buyer’s destination. Landed cost includes not just tariffs, also known as customs duties, but freight and shipping, production, packaging, currency conversions, brokerage fees, insurance and other charges.
When acquiring inventory, such as components, raw materials or finished goods, NetSuite’s landed cost functionality provides upfront visibility into what you’ll pay. NetSuite automatically allocates costs, such as tariffs, at the item level or as a percentage of purchase price, improving accuracy and minimizing calculation errors.
As input costs fluctuate, NetSuite provides real-time visibility that helps guide purchasing, pricing and supply chain decisions, helping to reduce the risk of unprofitable choices.
Scenario Planning and Modeling
NetSuite scenario planning capabilities equip your business to account for a full range of possibilities under any business conditions. Options explored can range from small price increases to diversifying suppliers, exploring new export markets or shifting production locations.
NetSuite’s powerful AI-enabled what-if analysis functionality lets you create, run and tweak a variety of scenarios to help identify your best options. Real-time scenario planning can help you create pricing, procurement, inventory management and financial forecasts. Over time, you can track real-world costs and profitability across customers, regions, and products.
Analysis also aids in identifying weaknesses ripe for mitigation. Are you over purchasing from certain suppliers? Do you need to diversify procurement to reduce risk? Does it make sense to renegotiate International Commercial Terms, known as Incoterms, with some foreign trading partners? NetSuite helps you decide.
Supply Chain and Vendor Management
Flexibility in supply chain management is crucial in a highly variable business climate. Having a solid understanding of your supplier network is key to successfully navigating supply chain challenges presented by changing tariffs and other input costs. Auditing your supply chain can unearth creative ways to lower costs, such as a new warehousing strategy, more efficient fulfillment or using a lower-cost shipping method.
NetSuite supply chain management delivers visibility into what, how much, when and from where items are being acquired. Businesses can make informed decisions about how to manage their procurement processes to ensure goods are available when needed, at the best price, tariff implications included.
Vendor management provides scorecards to track supplier performance by specified KPIs, suggesting opportunities to diversify the supplier base.
Demand planning helps predict future inventory needs so you avoid stockouts or overstocking that drives up costs.
Whether you decide to source materials from a different country, nearshore or reshore operations, or shuffle your supplier lineup, NetSuite gives you leading-edge capabilities to move quickly and confidently.
Need Help?
If you want to learn more about tariff management with NetSuite, contact us online or give us a call at 410.685.5512.
