How Will US-China Tariffs Impact Global Supply Chain Management?

    Posted by John Arkontaky on Jan 14, 2020 3:44:56 PM

    tariffsThe tariffs placed on China are creating ripples throughout the supply chain industry. Those with operational flexibility and supply chain agility can be in a better position to navigate these shaky times.

    As the US-China trade war intensifies, the American economy is plagued by uncertainty. Consumers and manufacturers alike are left on the edge of their seats wondering just how high prices will soar.

    Trade negotiations between the two countries remain ongoing — and while some proposed tariffs on Chinese imports have been suspended, others have already been implemented, and still more are set to go into effect. So how is the global supply chain faring throughout these developments? What does navigating these uncertain waters look like for manufacturers? Let's find out:

    How the China Import Tariff Impacts Manufacturers

    Past (and possibly future) tariffs on Chinese imports are directly felt by many key players within the global supply chain. As sourcing Chinese goods and materials becomes exceedingly expensive, many manufacturers seeking to skirt tariffs are abandoning their established suppliers and turning to new ones or existing suppliers are relocating to more affordable countries like Malaysia and Vietnam which arent experiencing the same tariffs as China.

    While some new suppliers offer better prices compared to the tariffed Chinese goods, their prices are often still higher than what many American manufacturers paid for Chinese goods before the tariffs were instituted. Economists call these extra costs "deadweight costs." Losses quickly add up, directly impacting not only manufacturers, but the prices consumers pay in the checkout aisle.[1]

    With the threat of future tariffs still looming on the horizon, many manufacturers are preparing for large spikes in consumer demand. Retailers expect consumers to stock up on their favorite goods now, before prices grow even further. That means manufacturers will have to find suppliers (like those in Vietnam and Malaysia) who are not only affordable, but can meet rising demands from both a labor and materials perspective.

    Other challenges supply chain managers can expect to face include identifying transportation solutions within these new territories and ensuring existing third-party logistics (3PL) warehouses are equipped to store larger volumes of inventory. It's easy to see how tariffs quickly become not just about costs, but redefining logistics plans that have been in place for years, if not decades.

    Supply Chain Management for the Future

    In preparation of new tariffs and spikes in consumer demand, manufacturers must ask themselves: do I have adequate supply chain capacity? And if I don't, how do I restructure my partner network accordingly? Addressing these challenges is no small feat but, manufacturers need agility and scalability. Fortunately, manufacturers don’t have to go it alone.

    This is where robust 3PL management teams come into play. They ensure manufacturers are prepared for any market challenge — whether it's new tariffs, an embargo, or labor strikes — that threatens their viability. That means working with warehouses to implement innovative warehouse management systems that can be deployed rapidly, scale with varying facility volume, and scale in technology depending on complexity—from low technology for temporary facilities to highly automated facilities. Warehouse floor plan redesigns, clustered orders for transport to packing stations, and better labor management may also be in order to improve overall supply chain performance. Some businesses even choose to adopt a continuous process improvement (CPI) philosophy to evolve their operations along with the changing landscape of their supply chain needs.

    A 3PL management partner is also important from a distribution network perspective. These partners have a network of facilities across the globe, allowing them to set up secondary distribution systems that minimize the risk associated with relying on a single source of distribution alone. This network is especially crucial during times of transition, when manufacturers must seek out suppliers in new territories.

    Implementing a 3PL Solution

    As manufacturers ride the tides of shifting politics and evolving consumer demands, they’re looking to keep deadweight costs at a minimum in an effort to not only survive — but thrive. That means starting at the source: tapping new suppliers in new countries and striving to ensure every partner within their supply chain keeps pace.

    To truly succeed in these uncertain times, manufacturers can’t rely on in-house logistics departments alone. They need to partner with global supply chain professionals who can help build an agile and flexible supply chain. Further, real-time logistics technology can help manufacturers optimize operational processes to boost efficiency and maximize ROI. Working together, manufacturers and 3PL management teams can navigate new territories and help keep consumers happy.

    Topics: 3PL, International, Warehouse Management Systems (WMS)