Trump’s tariff pledges have companies questioning inventory, supply chains

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President-elect Donald Trump’s pledge to raise tariffs and the possibility of a second U.S. port strike in January have companies wondering what their inventory strategies should be.

Eden Prairie-based C.H. Robinson, one of the world’s largest logistics companies, has fielded numerous questions from clients on what they should do.

“Keep in mind even if some companies want to front-load, it might not be feasible if their suppliers can’t ramp up production,” said Mike Short, president of Robinson’s Global Forwarding business.

“For those who can and want to front-load, the reasons are split among the pending second U.S. port strike in mid-January, the Lunar New Year starting on Jan. 29 and potential tariff changes.”

Managing a supply chain is a complicated business. The ifs of the situation outnumber the definite factors and the timing of those factors, experts say.

Without specifics on what countries would be affected, how steep the tariffs might be and when they’d be applied, it’s hard to make decisions.

A complex global supply chain can’t be turned on and off like a kitchen faucet. Ordering supplies from overseas that move by ship might take months from the time an order is made until final delivery.

There are increased costs associated with stockpiling inventory, and that could offset some of the benefits, as evidenced in Target’s recent quarter.

Target increased inventory in anticipation of an October port strike because it didn’t want to be shorthanded during the holidays. The strike ended up to be short and not very disruptive.

Target CEO Brian Cornell said on the earnings conference call about a quarter when profits dipped 12% that front-loading inventory incurred additional costs.

“We’re never quite as efficient when our buildings are full,” he said.

But the post-pandemic years when companies had a hard time finding the parts they needed or the items for store shelves left it’s mark.

Many companies re-examined supply chains after tariff increases during Trump’s first term in the White House and disruptions during the pandemic. Now some companies are examining if they can take measures against more predictable events that are looming in the near future.

“Supply chains work best when they’re predictable and they’re systematic and they’re formulaic,” said Holden Lewis, chief financial officer of Winona-based Fastenal, which has a location in Spokane Valley. “The biggest input should be the forecasting of demand.”

Many companies have adopted the reshoring, near-shoring or friend-shoring trend – finding trading partners in countries allied with the U.S. – in recent years, but the changes can take years to implement.

“We have been emphasizing the importance of diversification for years, and the potential for new trade policy changes only heightens the significance of that message,” Short said in an email.

“Shippers must pay attention not only to changes in the U.S. but also across the globe. Our customs and trade policy team works alongside our customers to ensure they’re aware and prepared for changes to remain compliant, no matter where they’re shipping.”

There is a difference between the pandemic-fueled supply chain disruptions and economic shocks to global supply chains, though. Supply chain experts have a playbook for the economic events, but they can still be disruptive.

Scott Martens, professor of operations and supply chain management at the University of St. Thomas, said companies have been running lean inventory systems for almost 30 years. That has helped global economics. The communication and transparency needed to maintain that sort of system has helped mitigate the bullwhip effect that caused big economic swings that were once more common.

Better and more accurate information has helped supply chain managers manage the normal changes to demand, too. But extraordinary events can still put a kink in the chain, like stocking up in response to potential tariffs

“When you’re running really lean, which is very good from a cost and efficiency standpoint, any disruption in the supply chain puts a big kink in that snake,” Martens said.

Fastenal, like others, learned a lot from global supply chain challenges over the past six years after having managed through 2018 tariffs and the pandemic. That sort of broad diversification takes time and careful planning.

“One of the things that we’ve all learned, not just Fastenal, … diversification is a wonderful thing,” Lewis said. “One of the things we learned through the first part of tariffs and the pandemic is maybe you shouldn’t concentrate too much of your supply chain in a narrow range of locations.”

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Source link : https://www.spokesman.com/stories/2024/nov/25/trumps-tariff-pledges-have-companies-questioning-i/ Author : Publish date : 2024-11-25 07:43:00 Copyright for syndicated content belongs to the linked Source .