How to mitigate the impact of Increased Tariffs

So finally, President Trump announced the increased Tariffs on the US imports yesterday. The stock markets are in free fall while consumer sentiment is nose-diving. I am sure we can have a good debate regarding are these tariffs improve US jobs and economy in the long term, but in the short term they are going to be very painful for both companies and consumers. Hence, the immediate step for the companies is to develop strategies to mitigate the impact. Based on my years of experience across various retailers and supply chain planning over the last several years, I believe the Supply Chain teams will be focused on the following actions:

1. Expedite bulk import: Considering the import tariffs will be imposed from April 9th, the immediate focus for supply chain teams is to expedite to receive the imports before that the effective date. I think most of the teams already knew that. That's why the volume of imports for the last three months has been significantly higher YoY. The teams will have to continue doing that in the immediate term. My suggestion is to focus on your most important/stable assortment and ensure you have sufficient safety stock inventory within your network. 

Incrementally, also mop up any domestic inventory already inside US from the distributors. 

2: Negotiate lower prices with suppliers: As the import tariffs will increase the landed costs of the imported goods, a part of the effort has to be negotiated lower costs with the suppliers. Of course, suppliers will not like that, but they understand. In return, retailers have to give the suppliers better terms that reduce their manufacturing costs. This includes consolidating purchases to fewer suppliers to improve economies of scale, long-term commitment to buying the minimum quantities or even faster payment terms.

Another aspect of mitigate tariff will be to change importer of record and Incoterms. The import tariffs are imposed on the cost of goods in Bill of Landing (BOL). So, you can reduce the base cost by removing any fees, profit margin, etc. the import tariff can be lower. This will increase paperwork but that is mostly (or can be easily) automated.

3. Adjust the long-term forecast and purchases: Many of the retailers have automated demand forecasting and inventory planning systems driven by ML models and creating automated purchase orders. While short term demand may not fall immediately (for example Easter demand likely is not impacted, the long-term demand will definitely impacted. If the retailers have already placed or are going to place purchase orders for Back to School (BTS) and 2025 Holiday season - need to revisit them quickly. The demand will drop due to both higher prices and a likely recession. 

4. Increase product prices: This aspect is the most worrisome aspect of the increased tariffs. Some of them will be passed on to the consumers and this will lead to increased inflation. Retailers will have to find out how to increase prices considering the demand elasticity (demand will decrease with higher prices), discretionary vs. essential, premium vs. low price leader, competitive landscape. 

5. Develop domestic suppliers and manufacturers: In my opinion, this is the long-term project - how to move production and supplier to the US. This may include complete cost engineering to understand what cost drivers are and redesign to remove components/features that add more costs than perceived consumer value. This will also increase the level of automation and robotics to manufacture the products domestically. 

Let me know what steps you are taking to manage your business!