In these rapidly shifting economic conditions, procurement and supply chain professionals are increasingly called upon to navigate complex challenges such as rising tariffs, inflationary pressures, and changes in trade policies. While these economic changes present obstacles, they also provide unique opportunities for companies to adapt, innovate, and build more resilient supply chains.
Here’s how procurement and supply chain professionals can leverage current economic changes to optimise their operations and drive long-term success.
- Negotiating Better Terms with Suppliers
Tariffs may increase costs, but they also present an opportunity to negotiate more favourable terms with existing suppliers. In times of economic volatility, many suppliers are willing to be more flexible, especially if the procurement team can offer guarantees of long-term business relationships or larger order volumes.
Actionable Strategy:
Collaborative Negotiation: Instead of simply absorbing the higher costs caused by tariffs, engage suppliers in discussions about sharing the burden of these increased expenses. You might negotiate for better pricing, fixed contract terms, or additional value-added services that can offset the tariff increases.
Volume Discounts and Long-Term Agreements: Suppliers may be more willing to offer discounts or better pricing for larger orders or long-term agreements, especially if the procurement team can offer predictability in purchasing volumes.
- Leveraging Tariffs to Negotiate Trade Policy Advantages
Although tariffs often increase costs, trade agreements and government incentives can also work in favour of businesses. Many countries, including the US, have entered into new or updated trade agreements aimed at benefiting specific sectors. These agreements may offer tariff exemptions or reductions for certain goods, industries, or regions. Procurement professionals can leverage these agreements to reduce costs
Actionable Strategy:
Stay Informed About Trade Agreements: Keep up to date with trade agreements between your country and others. For example, recent trade agreements like the US-Mexico-Canada Agreement (USMCA) can provide tariff relief for companies doing business in North America. Understanding how these agreements affect your supply chain can give you a competitive advantage.
Explore Government Incentives: Some governments offer tax incentives, subsidies, or grants to companies investing in local production or green initiatives. Be sure to tap into these opportunities, which can offset the higher costs associated with tariffs and enhance your bottom line.
- Enhancing Agility through Inventory Management
In uncertain times, maintaining an agile and resilient supply chain is essential. With the possibility of tariffs changing at any moment, procurement professionals need to focus on maintaining flexibility in their inventory management to avoid stockouts and unexpected costs.
Actionable Strategy:
Safety Stock and Buffer Inventory: In response to rising tariffs or potential disruptions, consider building up safety stock for critical items that are highly susceptible to price hikes. This extra inventory can buffer against rising costs and ensure that production doesn't slow down due to supply shortages.
Just-in-Case Inventory Strategy: While many companies adopt just-in-time (JIT) inventory practices, which focus on minimising stock levels, a “just-in-case” strategy might be necessary in times of volatility. Maintaining a small buffer of key materials can help mitigate the impact of tariffs and other economic shifts.
While tariffs and other economic changes pose significant challenges for procurement and supply chain professionals, they also offer unique opportunities to innovate, optimise processes, and create more resilient supply chains. By embracing diversification, technology, strategic supplier negotiations, and proactive risk management, procurement teams can turn these economic disruptions into competitive advantages.
