As U.S. retailers roll out plans for 2020, the only certainty about how global trade relations will impact their business is that uncertainty will continue. That’s particularly true when it comes to China, the biggest supplier of goods to the United States.
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The two countries recently announced a partial thaw in their trade war, with a “phase one” deal that winds down some of the imposed tariffs, but tensions remain high. As a result, retailers remain on high alert, bracing for ongoing disruptions in their supply chains.
American importers—and ultimately consumers—often bear the brunt of the cost of tariffs. Effectively paying a tax on the goods they import, retailers have to weigh a number of difficult choices to keep their bottom line intact. They could stop making a product or move production to another country, cut costs by laying off workers or making operations more efficient or pass on the higher costs to consumers.
So far, U.S. retailers have absorbed some of the costs from the tariffs on Chinese goods with some of the additional costs passed on to consumers, according to a recent study by a group of economists from the International Monetary Fund and Federal Reserve Bank of Boston, among others. To some extent, retailers have adjusted by boosting imports before the tariffs took effect or by moving production elsewhere. But some economists speculate that if the tariffs remain in place much longer, consumers will end up feeling the pinch.
“Tariffs that the United States has placed on Chinese goods have caused damage to U.S. companies, including the millions of workers they employ and the millions of U.S. consumers that they provide products to,” said Jordan Speer, research manager in Global Supply Chain for IDC. “If tariffs remain in place or uncertainty continues, retailers that buy from China will likely need to make significant changes.”
By leveraging the right tools, retailers can anticipate supply chain disruptions and act quickly to mitigate the impact of uncertainty on their business. A Connected Planning platform, for instance, arms retailers with a single source of truth to evaluate potential disruptions up and down their supply chain. This enables decision makers to quickly capitalize on changing business dynamics, transforming uncertainty into a competitive advantage.
“With a connected and intelligent supply chain, if a company were hit with a sudden surprise hike in tariffs to a product it was producing in China, it would be able to quickly determine which products were affected, the additional costs to each, and whether or not it was any longer profitable to produce that product in that country,” explains Speer.
A connected supply chain breaks down silos and consolidates data, plans and processes into one platform so decision makers have access to the most relevant information in real-time. This holistic view of an organization creates a more nimble, efficient operation, freeing up time for business leaders to evaluate risk, analyze potential impact and make informed supply chain decisions that drive real value in any market condition. By embedding Connected Planning into their supply chain strategy, one global manufacturer and retailer of children’s apparel has been able to quickly increase efficiencies and reduce inventory and carrying costs by $30 million.
However, many retailers still use legacy tools to navigate their supply chains, leaving them ill-prepared to make confident business decisions in the face of trade headwinds. While four out of five retail planning professionals acknowledged in a recent Anaplan survey that planning is critically important, only one in ten said their companies have been successful at converting all their plans into action. And more than half said they need to improve collaboration across the business.
“The retail industry is undergoing a technology fueled transformation, and retailers are working tirelessly to keep up with a variety of factors like shifting consumer preferences, margin pressures and drive towards more eco-friendly business models,” said Ara Gopal, head of industry solutions at Anaplan. “With the added uncertainty of tariffs, it’s imperative for retailers to fortify their planning and decision-making foundations so that they can quickly and continuously innovate in the face of change.”
With continued trade turbulence on the horizon, adopting a Connected Planning approach will help retailers anticipate and analyze potential tariff risk, mitigate costs, and keep their bottom line intact—all while protecting consumers.
“The benefits of a connected supply chain when it comes to handling uncertainty—whether that’s because of tariffs, weather, politics, delays or any other problems—is vast,” said Speer. “Without visibility, a problem arising from any front can derail your entire supply chain.”
