Mitigating Tariff Risk in MRO

As trade talks have crumbled, the tariffs on Chinese imports will rise form 10% to 25% on a third of everything the US current imports. China has responded by increasing tariffs on US imports. This has escalated the tariff standoff even further and the US has threatened to apply a 25% tariff on the remaining two-thirds. This effectively would mean that there is a 25% tax on almost all Chinese based products. Tariff increases aren’t just with China as talk of imposing increased tariffs on Mexican imports has progressed. With additional tariffs looming many MRO suppliers are forced to pass the increased cost on to their customers. In almost all instances it’s the consumers that have to bite the bullet. But what if there was some way around it?

With so many different manufacturers in the MRO world there just might be. This is when procurement needs to get more creative with their approach to purchasing. Broad stroke price increases such as this should trigger are review and deeper dive. Procurement shouldn’t be in the business of just accepting a 25% increase and shrugging their shoulders. What they should be doing is working with their suppliers to qualify comparable alternate items from Manufacturers not effected as drastically by the tariffs. Sure not all tariff impact can be avoided especially if it’s effecting key raw materials that are being imported but some of the price risk can be mitigated.

Procurement should work with suppliers to identify comparable alternates that are the same form, fit function and match the current product from a specification standpoint. Procurement then should review product cost compared to the current item as well as work with the supplier to assess the risk of tariff increases based on manufacturer location and where the product is being imported from (if it’s being imported). From their procurement should down select alternate items to be tested. This is when engineering or safety/quality assurance may need to be involved dependent on the item. If it’s a key item related to production engineering may need to assess to ensure the item doesn’t damage the end product or production line. If it’s an item such as gloves that is used for personal protection almost always safety or quality should be involved to ensure a safe workspace. Qualified alternate items must have the same of better durability and life cycle to ensure comparable total cost of ownership.

Long story short, with the large increases to unit cost that are being passed through from manufacturers and suppliers alike, it’s time to do your due diligence and explore other options. Whether that be finding alternative items to reduce cost, identifying a new supplier that did a better job mitigating tariff risk or formulating some type of out of the box solution. Procurement can either look at the upcoming tariffs from a glass half full or glass half empty perspective. They can either be crushed by looming increased costs or elevate themselves within the organization as the department that was able to save the company from taking on increased costs.