2019 is Here…What’s the Deal with Tariffs?
As we plunge into the new year, much is still churning when it comes to trade policies. The tariff increase on Chinese goods scheduled for January 1st was delayed for 90 days after discussions between President Trump and President Jinping at the Group of 20 Summit in December. With the Trump administration also expected to provide more direction regarding automotive tariffs by mid-February, the first quarter of 2019 is literally abuzz with policy activity.
So what do we do in the meantime?
In our last blog installment, Pete Dondlinger provided some tips for working with your strategic fleet partners regarding tariff impacts. Beyond those recommendations, the best move is consider the long game before making any moves. I’d like to share some of the daily measures our Procurement team leverages to mitigate cost impacts driven by trade policies and other macroeconomic factors.
Peek Behind the Procurement Curtain
While tariffs have been a hot topic lately, managing supplier relationships during a time of global economic uncertainty is “business as usual” for our procurement team. We’re purpose-built to tackle constant changes in the global marketplace that affect our businesses and our customers.
We have to focus on the big procurement picture in order to achieve the best long-term results. For example, it may seem like a logical choice for us to quickly direct our partners to cease sourcing Chinese auto parts in light of the tariffs. Spoiler alert – we’re not! In spite of the immediate panic around potential cost increases, changing suppliers may actually be a poor financial decision in the long run.
We’re living in an inflationary environment, and it becomes a balancing act to factor in a myriad of variables such as increasing labor rates, currency fluctuation, interest rate increases, etc. In December 2018, the Institute for Supply Management (ISM) U.S. manufacturing index plunged by the most since October 2008, reflecting the global strains on the economy. While the ISM headline is daunting, it is important to note that the reported reading of 54.1% continues to indicate growth. We have to keep all of these factors in mind when approaching procurement decisions.
Tools of the Trade
We tackle procurement challenges through research, relationship building, and technology. Our team keeps a steady eye on economic indicators to best prepare for any changes coming down the road. We set clear expectations with suppliers regarding transparency and work to negotiate agreements that deliver maximum value. While some increases become inevitable due to economic factors outside of our supply chain’s control, we need to trust our suppliers to communicate market pressures so we can best prepare ourselves and our clients for any changes. We also use automated controls to alert us to pricing variances and address them immediately.
Business as usual for our procurement team involves controlling cost, quality and risk for our company as well as yours for years to come and not just the present time.