Six Challenges Global Tariffs May Create in Manufacturing and How to Overcome Them

The complexities of global tariffs pose significant challenges to manufacturing companies. While there are myriad challenges, here are six specific concerns, along with strategies on how cloud-based technologies can address them.

1. Increased input costs: While raw material costs are always incrementally rising, tariffs will likely exponentially increase the cost of imported raw materials and components, squeezing profit margins across every segment in manufacturing. Manufacturers must either absorb the costs, raise prices (risking lost sales), or find alternative suppliers.

2. Supply chain disruptions: Even in the best of times, the supply chain is a near constant source of concern for manufacturers — especially those in segments like mixed mode manufacturing, working across the global market. But tariffs may lead to more dramatic and sudden shifts in supply chains, causing delays, shortages, and increased logistical complexities.

3. Fluctuating demand and market uncertainty: Manufacturers must continually adapt to shifts in market demand and consumer expectations. But tariff fluctuations  create market volatility, making it difficult to forecast demand and plan production. This uncertainty in consumer demand can lead to overstocking or understocking, both of which are costly.

4. Reduced export competitiveness: Global tariffs imposed on specific locations can significantly undermine a manufacturer's export competitiveness in those markets, particularly impacting industries with tight margins or high export volumes. For example, in the automotive sector, a 25% tariff on vehicles exported to a key market like Canada could drastically increase their price, making them less attractive compared to locally produced or other imported vehicles.

5. Relocation and restructuring costs: In trying to get ahead of the curve, some businesses literally make a move by relocating or outsourcing. But relocating or restructuring for tariff avoidance presents hurdles like high capital costs for new facilities, operational disruptions during the move, and the complexities of establishing new supply chains. Manufacturers also face workforce challenges, navigating new regulations, and potential infrastructure limitations in the new location, all impacting timelines and costs.

6. Increased administrative burden: The dynamic landscape of tariffs, regulations, and trade agreements significantly amplifies the administrative burden on manufacturers. They must constantly monitor evolving policies, assess their impact on sourcing and sales, and adapt compliance procedures. This involves complex documentation, new customs filings, origin certifications, and potential duty adjustments. Tracking and adhering to varying rules across different markets demands significant resources, diverting focus from core production and innovation, and increasing the risk of non-compliance penalties.

How cloud-based technologies can help address global tariffs

While the challenges are complex, there are myriad solutions to help you more easily navigate them. Although there is no single solution that fits every situation, there are foundational enterprise technologies that empower manufacturers to take on tariff challenges while remaining agile.

ERP (enterprise resource planning): Cloud-based ERP systems provide real-time visibility into inventory, supply chains, and financial data. This allows manufacturers to quickly identify and respond to challenges in the supply chain, input costs, and customer demand and reduce disruptions, optimize inventory levels, and manage costs. ERP systems can also help with the tracking and management of changing tariff costs and help with the financial analysis of those cost changes.

CRM (customer relationship management): CRM systems are the cornerstone in helping manufacturers maintain strong customer relationships, especially during market volatility. They enable targeted marketing and sales efforts, helping retain customers and find new markets. CRM systems can also help with the tracking of customer reactions to price changes caused by tariffs. In times of change, it is critical to keep customers engaged.

AI (artificial intelligence): While generative artificial intelligence can be a great in help in, for example, automating workflows (reducing administrative burdens and increasing efficiencies), a manufacturer can also lean into AI for advanced analytics, helping them forecast demand, optimize production schedules, and identify potential supply chain risks. It can even be used to search for, and help to qualify, new supply chain sources.

Low-code platforms: For increased agility and situational flexibility, being able to quickly create the solutions you need is paramount. Low code enables manufacturers to develop and deploy custom business applications to address specific challenges, which can help them automate processes, improve communication, and adapt to changing market conditions.

By embracing these technologies, you can build greater resilience for your manufacturing business, improve agility, and thrive in the face of global trade challenges. Not sure where to start? We can help. Contact us for a free consultation.