No Place to Turn

Liberation day and then the 11th hour pull-back of some of the tariffs — combined with the escalating trade war between the US and China — complicate an already complex picture. The sheer breath and scale of the tariff regime carries one vital meaning for most companies: there is no place to turn.

However, when one thinks of tariffs, previous tariffs were targeted by materials and nations, meaning:

  1. Consumers were, at best, partially aware of them
  2. They were sufficiently focused on limiting the threat of broad trade wars or loss of markets to US goods and services
  3. There was a reasonable opportunity to re-optimize supply chains to protect supplies and margin

These rounds are different in oh-so-many ways, but importantly:

  1. There is a chill across the consumer base: on top of the expected $4,200 decline in household purchasing power due to tariffs, consumer confidence is near an all-time low and even with some surge in spending in front of the impacts of tariffs, we are already seeing consumers trading down and trading out
  2. The evolving trade conflicts strongly suggest that, apart from select carve-outs, few industries will be spared from the impacts of tariffs
  3. The global scope of tariffs means that supply chain leaders won’t easily find safe havens to avoid higher costs
  4. The combination of inflation-wary and unconfident consumers and higher input costs will stress margins due to revenue, cost, or both

There is a returning concept of radical suggesting that the uncertainty is so profound that it’s impossible to assign probabilities to future outcomes. That may be true when trying to get to specific financial outcomes, but here we may want to flip our logic to radical certainty: business leaders can be certain that negative pressure will continue to mount on margin performance. And pressure will be caused both by weakening revenue and increased costs.

Most businesses will face an unavoidable dip in performance. For the next six to nine months, the game plan should be to manage the dip to make it as shallow and short as possible and avoid a long, deep, or perilous dip. We believe critical steps are:

  1. Run risk scenarios that have a clear line to budgeting, forecasts, and reserves, even if the level of precision is broad
  2. Rapidly move beyond any sense that “good enough” operations are good enough in this climate; instead, to aggressively drive cost and variability out of operations
  3. Expand and scenarioize supply chain options, including the time, cost, and risk to reoptimize and the tariff landscape, although certain in its impact, is likely to be fluid in its specifics
  4. Rather than focusing the supply chain team on greater efficiency within current operating model(s), focus on “nimbility” in the ability of your supply chain to quickly yet effectively adapt to this quickly changing environment
  5. Get a clear, pragmatic view of benefits as your teams may already be overwhelmed with keeping up with status quo, let alone new projects — this has got to be provable

Get Insights and Support to Navigate Uncertainty

RRA provides both rapid assessments and operational and supply chain strategies designed to understand and counter risks, to help you manage the unavoidable dip, and come out the other side competitively advantaged.

Connect with us today to learn how we can help.