Before President Trump’s second administration, industry experts speculated on how his self-declared love of tariffs might impact global trade. While the administration’s “America First” strategy has initially focused on countries, such as China, Canada and Mexico, the ‘wait for tariffs’ likely to be imposed on the EU have amplified uncertainty for many brands, with leaders already bracing for the effect of tariffs on their supply chains.
Some retailers, such as H&M, are looking to safeguard their operations by shifting to more regional supply chains, with the company aiming to purchase more of its products from suppliers closer to key markets in Europe and the US.
Often during global uncertainty, the default is to buy, just as we witnessed during the pandemic. In the President’s first administration, for example, his decision to increase Chinese imports caused freight rates to rise by more than 70% due to retailers buying safety stock ahead of the changes. But in the long-term this can artificially boost prices and lead to inflation. Companies must avoid knee-jerk reactions in response to tariffs and learn from recent mistakes.
Broad and thin supply chain networks will continue to be vital as new levies are announced. Leaders should aim to mitigate these riskier operations by creating more resilient, agile and flexible supply chain practices. In reality, that means prioritising strategies such as onshoring or friendshoring, unifying planning and execution capabilities and strengthening digital cores.
Shifting to onshoring
Onshoring or friendshoring is one step brands are considering preparing for global supply chain volatility in the wake of tariffs. Following new US measures, costs in the European trading bloc will rise, encouraging a larger number of companies to potentially repatriate production of many products to domestic markets, or at least countries closer to home. This will allow brands to bypass the difficulties of costly international value chains and ensure greater control of lead times.
In the short term, reshoring could mean more direct costs for some businesses, but in the long-term – especially during peak seasons – it could well lessen the risk of external shocks during economic uncertainty and ensure more timely, cost-effective, and sustainable operations.
There’s no magical strategy which will completely shield companies from the full economic force of tariffs. However, there are ways for retailers to be more agile and flexible to turn these challenges into long-term advantages. Businesses should be regularly reviewing and updating their supply chain strategies and processes to ensure greater resilience in the future.
Onshoring or friendshoring is a strategic response that could give industries the ability to take back more control of their production and avoid risky single points of failure in their supply chains, as we witnessed during and in the aftermath of the pandemic.– Alex MacPherson, Director of Solution Consultancy & Account Management, Manhattan Associates
Improved planning
Consumer expectations for fast-paced service and convenience don’t change just because of economic uncertainty or geopolitics. In the wake of tariffs, organisations must strengthen their contingency planning and adopt more flexible mindsets to adapt and problem-solve more readily. This is all about implementing seamless and robust planning and execution across supply chains but also about increasing transparency.
More effective supply chain planning unifies supply chain execution to eliminate systemic and operational silos, unlocking enterprise-wide optimisation for the entire inventory assortment and all the resources required to flow through the supply chain. The ability to coordinate with solutions like OMS, WMS and TMS is a gamechanger. Now inventory, labour, and transportation planning can be considered together to ensure the optimal outcome to benefit the organisation as a whole.
– Alex MacPherson, Director of Solution Consultancy & Account Management, Manhattan Associates
Resilient digital core
With at least a short-term return to a tariff-based international trade structure, businesses must ensure that a strong, unified digital core is at the heart of their supply chain operations and a strong digitally enabled enterprise-wide approach will mitigate the pressure of future disruptions.
The good news is that the European and British businesses have been here before and will have plans and strategies (including supply chain agility and near-shoring initiatives) in place to mitigate against any new tariffs, be they from the West or the East.
