The trade war wages on. Although there is much speculation about the duration of the trade war, we at Complete Manufacturing and Distribution expect it to continue. With an unpredictable future, we recommend that our clients prepare a Plan B.
Tariffs imposed by China and the US continue to have an impact on supply chains creating uncertainty on the feasibility of successful product launches. Many companies are caught like deer in the headlights hoping the car will stop. Hope is not a plan. In this article, we cover things to consider when launching a product during the trade war, because we have an inkling the car won’t stop.
Effects of Tariffs on a Product Launch
International supply chains are interwoven and complex. The following effects are not meant to be an exhaustive list, but rather some important considerations. Each company, supply chain and product launch has nuances. The commonalities are in being proactive.
Financial cost, time cost, and opportunity cost are all under pressure. The first—and most obvious—is financial cost. Every product is comprised of a multitude of components. With the vast net cast by tariffs , cost unpredictability is certain.
Speed-to-market is likely an important consideration for your product launch. If you are in the middle of launching a product – continuing with your partially developed supply chain may make more sense than hitting the re-start button (finding a new supplier, making tooling, and getting a new supplier up to speed). Some companies are making strategic decisions to keep initial production runs in China even though tariffs continue to escalate as they prefer to prove out the product and business case before shifting the supply chain from China to SE Asia. Having good information about potential costs related to manufacturing in SE Asia provides the intelligence necessary to see at what point (in the tariff escalation game) it makes sense to move production.
Referring back to the deer in the headlights , the cost of not moving could mean getting run over. For any team launching a product during a trade war, there are trade-offs. Financial costs, time, and risk are all interwoven. A choice to allocate resources “here” leads to less resources “there.”
Political uncertainties compound the risk of inaction or a misallocation of resources. CMD believes the best way to mitigate political uncertainty is to create contingencies in locations where there is less uncertainty. Southeast Asia is stepping up with viable alternatives to China.
How to Proceed
Industry leaders are engaging experts and developing a Plan B. Involving experts to research movements of component sourcing and/or operations is prudent and a hedge regardless of what happens next.
If you are staring at the oncoming headlights, here are a few first steps you can take:
- 1. Review your product lines
- 2. Sort top 2 -3 revenue/profit generators
- 3. Update tariffs by HS code (by component and/or assembly)
- 4. Calculate 2 -3 tariff rate scenarios
- 5. Find new potential factories in SE Asia (relevant for your product line)
- 6. Verify they have capability, interest, and capacity to work on your products
- 7. Qualify them through audits
- 8. Obtain quotes (this usually takes a few rounds of back and forth to confirm accuracy)
Companies which engage with experts to “read the tea leaves” are the best prepared. While it is impossible to provide company-specific recommendations in this article, CMD has the resources and expertise to assist you in creating a plan of action for your product launch. In addition, we will help with contingency strategy, risk mitigation, and execution. Let's review your plan of action .