As President Trump’s unpredictable tariff announcements continue to emerge from the White House, American businesses are grappling with how to adjust their import strategies for greatest effectiveness.
These are volatile times for importers and personally I’ve never been so whiplashed in my 30 years of managing supply chains. Any plan we make today could be easily upended by the next shock announcement.
While tariffs are likely to target China, questions remain about the impact on Mexico, Canada, Europe and the rest of the world. Against this backdrop, American companies are looking to diversify their supply chains and are re-evaluating long-standing – and often successful – relationships with manufacturers in China.
Regardless of how the tariff regime plays out, businesses should address key questions when diversifying their supply chains and sourcing goods from untested suppliers.
Through thorough desk research, questionnaires to prospective suppliers, tours of factories and leveraging local knowledge that includes the know-how of employees and partners, businesses can build up a detailed picture of potential new suppliers before signing on the dotted line.
Don’t choose suppliers purely on cost.
Avoid choosing suppliers purely on cost as there will always be a reason why the cost is low.
Other key considerations are:
1. Logistics is key.
A factory may be located some distance away from the nearest transport hub and lack links to a seaport or rail connection, for example, meaning that your shipments could become slow and unpredictable.
Identifying the timeline for product delivery is vital and a factory should be hours, rather than days, away from a transport node. It is also vital that businesses have their own logistics team rather than using external experts to ensure that mistakes like this are not made.
2. Assess infrastructure.
Are there reliable transport links not only for shipping product but also for receiving raw materials and enabling staff to commute?
Evaluate if available utilities can support essential equipment. A food business that might require refrigeration units – are these available and is there energy infrastructure to power them?
Gain a clear understanding of the supplier’s capabilities before you start working with them, to avoid any unexpected shocks. When sourcing supplies from abroad, the unexpected can happen.
Assessing infrastructure is especially important for new-build facilities where amenities such as power supplies, internet and mobile coverage, transport links and local services may not be fully operational.
3. Check labor availability.
To be able to support customer orders consistently within the committed lead times, suppliers must have access to sufficiently skilled staff.
Entry level jobs are relatively easy to fill but the challenge comes in finding skilled managers who know how to install and operate machinery and technology, manage quality control and quality assurance and check regulatory standards. Mid-level managers also need to be able to manage people within the industry they are supporting.
Many countries are still building this expertise and establishing their capacity to handle new supply orders, so external support may be needed to help with training.
Ensure that labor conditions align to your company’s values, with decent wages and safe, fair practices on issues such as overtime and the age of employees, working conditions and fire safety. It’s crucial to audit the information supplied by factories to ensure you are getting what you pay for but at the same time, that costs are being kept under tight control.
4. Leverage existing supplier relationships.
One approach is to ask existing suppliers to supervise new investments and set up alternative supply arrangements. This maintains a business relationship with those suppliers and helps smooth the transition to a new provider.
The current supplier could oversee a lift and shift of the technology and skills to the new factory. This maintains consistency and keeps elements of the existing supply system in place, minimising disruption.
5. Align your sustainability goals.
A supplier’s environmental and sustainability policies should align with your corporate goals. This may increase costs but is vital for certain companies and it can be expensive for new suppliers to put these policies in place.
6. Consider local environmental conditions.
Assess local conditions such as earthquakes, tsunamis and volcanoes as well as extreme weather conditions such as typhoons and flooding. There can also be seasonal climate variations that make supply more difficult depending on the weather.
7. Government and regulation.
Take the temperature of the current political and geo-political climate.
Look at issues such as corruption, ease of doing business and the legislative system. Is there political instability that could lead to disruption? Large companies can leverage their own trade and security staff to find out the relevant information.
Above all, however, work to find a win-win solution so responsibility for resolving the situation doesn’t rest solely on the shoulders of the manufacturer or supplier. This, along with considered evaluation, careful research and due diligence are key to successfully navigating today’s complex geo-political environment.
- Risk & Resilience
- Sourcing & Procurement
