Tariff Wars Will Increase Manufacturing Profits [For Some]

INTRO

Do you know the secrets to beating the competition during a trade war? During this tumultuous time, manufacturing companies will seal their fate. Do you have what it takes to lead your company or division to increased profits?

THE SITUATION

The trade war between the United States and China continues to heat up. The U.S. will increase tariffs on Chinese imports from 10% up to a staggering 25%. China is retaliating by increasing tariffs on $60 Billion of U.S. goods such as beer, wine, shirts and liquified natural gas. Stock prices fell ominously with the news.

The Office of the U.S. Trade Representative released a comprehensive list* of affected goods and among those were food ingredients and raw materials used to create medical devices.

WHO IS AFFECTED?

Among the first wave to be affected are supplier companies. Suppliers may be subjected to paying more for Chinese raw materials. As a result, suppliers may have to raise their prices to reach the break-even point, which will directly affect manufacturers’ buying decisions. 

Manufacturers can expect lower quality raw materials from suppliers as supply companies struggle to maintain margins. If the tariff changes become official, there will be less room for error on the manufacturing floor. Mitigating unplanned downtime, reducing waste, and improving Overall Equipment Effectiveness becomes more crucial than ever. In other words, the margin of error allowed becomes slimmer and productivity expectations will rise due to the increased tariff costs. Manufacturers will have to make tougher business decisions if the tariffs pass.

Consumers will be affected as well. An increase in raw material costs can cause manufacturers to takes shortcuts affecting product quality. Changes in quality will adjust consumer behavior and manufacturers will risk losing customers. In the case of increased tariffs, manufacturers risk increased sticker prices, quality issues and unsatisfied customers.

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THE GOLDEN OPPORTUNITY

Overwhelmed leaders don't see the value in taking action to reduce manufacturing costs and maximize available resources. Since the trade war between the U.S. and China is continually developing, manufacturers need to determine if they will sink or swim.

Suppliers have an opportunity to shake up the industry especially with supply-chain management and consumption based models.

Many manufacturers slide by with inefficient processes, underperforming equipment and undefined KPIs. Manufacturing companies have a pivotal opportunity to increase profits and come out ahead of their competition. Offset the effects of increased tariffs and increase profit by taking these steps:

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  • Monitor how your environment performs against your KPIs - Integrated analytics
  • Reduce operational inefficiencies e.g. downtime, cycle time, waste, etc. - Real-time IoT driven decisions
  • Identify and resolve gaps in your processes - Smart systems (what-if scenarios)

* Full list of proposed modifications: https://ustr.gov/sites/default/files/enforcement/301Investigations/May_2019_Proposed_Modification.pdf

 

 

Phillip Simulis
Post by Phillip Simulis