Riding smoothly over bumpy terrain: Managing tariffs in the automotive supply chain

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The uncertainty around tariffs and trade wars has left many supply chain professionals feeling confused and overwhelmed. What is going to be imposed and when? How is this going to impact my organization? What costs are we going to incur and how can we manage them? Can we shift sourcing strategies and what impact will that have on my network? But before we make any major moves, what’s really going to happen and when? In the automotive industry, the imposition of new tariffs can have major cost implications. Given the complexity of automotive supply chains, OEMs are dealing with thousands of parts and thousands of supplies to deliver a finished product. This can mean that key suppliers are based in regions where steep tariffs would be applied, or that the production process of a component could cross borders multiple times before becoming a finished part, being hit with a tariff at each crossing.

Impact of tariffs felt beyond OEMs

But tariffs don’t just impact the OEMs. Suppliers at all tiers are feeling the heat, as new policies are placed on raw materials like steel and aluminum. Many of these tier two and three suppliers are seeking exclusions to maintain operations, but in the meantime, production continues and these materials are needed down the line. How are those costs managed? Competition continues to grow throughout the industry and the threat of passing costs onto consumers while maintaining loyalty can keep any executive up at night. The Center for Automotive Research reported that the imposition of tariffs could result in 2 million fewer vehicles being sold in the coming year. In order to best serve customers, as well as stakeholders and the bottom line, auto leaders are looking to their supply chains as the hot zone for where the organization will be most impacted. The most savvy and mature of organizations are looking at their supply chain technology as a means to uncover potential cost savings and/or new strategies to cope in the wild west of the tariff wars.

Concurrent planning helps identify potential threats

Many Kinaxis customers are already utilizing our technology to manage this changing problem. With the end-to-end visibility and collaboration facilitated by concurrent planning, supply chain leaders can quickly identify areas of potential threat. With the ability to run scenarios, leaders can test out alternate strategies, from sourcing to production schedules to suppliers and more. The ability to very quickly run scenarios helps leaders know sooner and act faster to either avoid the volume of tariffs applied, or strike a greater balance throughout their operations to mitigate the impact of said tariff. Additionally, should the opportunity for duty-drawbacks apply, does that decision still make the most sense, or is it better to eat the upfront cost with one approach, knowing it will be coming back? With the power of RapidResponse, Kinaxis customers are already taking this sophisticated approach to managing tariffs. Backed by real data and a digital twin of their supply chain, supply chain professionals are more easily able to understand the ripple effects throughout the network and balance the trade-offs of strategic changes to operations, while also collaborating with other business functions and suppliers to find the right solution. So while knowing what’s around the bend in the tariff war is uncertain, how you’ll manage your business through it can be done with confidence.

For another example of how organizations are utilizing scenario analysis to better understand trade-offs and manage their business, check out the Lippert Components case study.

 

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