By Stavros Angelidis
As businesses across various sectors contemplate strategies to navigate the impact of the latest US tariffs, a critical decision needs to be made: should they pursue alternative routes?
Beyond the strategic implications of supply chain restructuring, the potential operational issues can affect any business, though the specific impact will vary depending on the type of business, the products involved and their market positioning.
To this end, decision-makers need to weigh the operational realities of shifting away from US-centric supply chains, seeking actionable insights into the operational adjustments required for this transition.
Ripple Effect on Production Scheduling
Integrating new suppliers and adapting production models will likely require adjustments to existing scheduling.
While companies with agile systems may adapt more readily, others can anticipate coordination challenges with unfamiliar vendors, varying lead times, and possible differences in material specifications.
Companies may need to make more frequent adjustments to production plans and anticipate increased communication.
Supply chains often experience fluctuations, even without tariff changes, and this transition will introduce additional variables. Therefore, companies should plan for potential increases in rescheduling time and a degree of unpredictability in production output.
Quality Control and Material Substitution
Quality control will require adjustments to maintain consistent standards.
As new materials and suppliers are introduced, companies can expect an increase in inspection frequency and detail. Staff may need additional training to inspect these new materials and identify any potential defects.
Companies should review their quality assurance protocols to minimise risks associated with the transition, as any compromise in quality could lead to customer dissatisfaction and reputational damage. Operations managers will need to closely monitor quality, ensuring that standards are maintained.
Companies may also need to update their standard operating procedures (SOPs) to reflect the changes in materials and inspection requirements.
Financial Forecasting and Daily Budget Management
The anticipated financial volatility associated with transitioning away from US sourcing, coupled with the operational adjustments necessary for quality control and material substitution, will introduce some uncertainty into daily financial operations.
Financial teams will find themselves grappling with the challenge of maintaining accurate budgets and forecasts in a rapidly evolving landscape. The increased frequency and detail of material inspections, potential defect rates during transition, and the need to refine SOPs all contribute to rising operational costs.
Daily budget reviews will become more frequent, and less certain, necessitating more detailed financial reports with real-time cost tracking. While larger firms may have robust systems for this, smaller firms may struggle with the resources needed for such detailed, real-time tracking.
The ability to react quickly to changes in both material costs and operational overhead will be paramount, requiring financial teams to constantly monitor and adapt their strategies.
Product Development and Redesign
For manufacturers reliant on imported components, a reactive product redesign translates to urgent engineering adjustments. Distributors and retailers may need to make some packaging changes, but the impact is less dramatic.
Regardless of sector, daily engineering workflows and project timelines may be significantly impacted, particularly for manufacturers with tightly integrated global supply chains.
Engineers, accustomed to structured development cycles, may find themselves diverted to address compatibility issues, packaging alterations, or compliance with new regulations. This can lead to an increase in urgent meetings, rushed prototyping, and immediate adjustments to existing specifications.
Communication and Information
Manufacturing, distribution, retail and logistics companies will all grapple with the need to disseminate rapidly evolving operational procedures, material specifications, and regulatory updates. This will necessitate increased communication efforts, requiring more time and resources for information sharing.
Daily operations will be affected by the need for frequent, often impromptu, meetings to address emerging issues and clarify new protocols. The daily challenge will be to maintain a consistent and accurate flow of operational information, requiring investment in communication tools, clear channels, and a culture of transparency.
However, the implementation of a communication tool (or a better workflow management system) can help avoid delays in communication that lead to operational delays and increased risk of errors.
Making the Decision
In the case of immediate cost savings and logistical adjustments, a thorough evaluation of the long-term implications is essential, acknowledging that the operational challenges are not permanent but rather a transitional phase.
The duration of this phase will depend on the speed of adaptation and the experience and collaboration of all stakeholders across the supply chain.
Companies must also weigh the potential for further political shifts, recognising that election cycles and changing trade agreements can impact timelines, therefore, the urgency of this transition could shift with changes in administrations and trade policies.
A meticulous assessment of how alternative sourcing or production models might affect the product performance and quality for the end consumer, and subsequently, the company’s brand reputation, is also crucial.
Regulatory constraints, intellectual property rights, or specialised manufacturing processes may further restrict the ability to make such a change.
The decision to pursue an alternative route requires a comprehensive, multi-faceted analysis, weighing operational, financial, brand, regulatory, political and end-consumer considerations, while acknowledging the time-intensive nature of the necessary adaptations.
Therefore, thhe choice to pursue alternative options in response to US tariffs is a strategic balancing act, demanding a careful consideration of immediate impacts against long-term operational resilience.
Stavros Angelidis, head of operations consulting & advisory www.stavrosangelidis.com , is a regular contributor to the Financial Mirror
