Implementing Tari�s intoYour Current Network Strategy

By: Paul Baris, Director, Supply Chain Solutions Haley Roberts, Consultant, Supply Chain Solutions

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Introduction Changing political climates and slowing global economy have made it more important than ever to include consideration of tariff changes into your supply chain network design. Due to the current US and China tariff negotiations, companies are changing the way they review tariff strategies within their supply chain. Although, there may be a win for the US regarding tariff negotiations with China, the disruption caused by these negotiations has generated unrest in supply chain organizations and companies should continue monitoring their sourcing strategies. This white paper addresses supply chain strategies that companies may be considering to mitigate the impact of tariff’s in this new but increasingly common volatile market.

BackgroundenVista’s expertise is designing robust and efficient supply chain networks for our customers. Our client’s value the importance of having a strong network design to execute a high-performance functional business model. The recent political climate is a strong reminder that it is critical to incorporate rising and falling tariffs as a permanent criterion of a flexible network design.

SolutionIncorporating tariffs into network design is recommended for use in long-term scenario rationalization. Supply chain network design should incorporate tariffs as part of scenario modeling and sensitivity analysis. Examining all possible outcomes and future developments that could have an impact on designing and maintaining your flexible supply chain. enVista encourages our clients not to view their new supply chain model as stagnant paradigm, but an ever-changing model which requires flexibility. The long-term design of a strategic supply chain should be somewhat predictive in nature and should model changes in sourcing due to tariff pressures.

When trying to mitigate tariff impacts on network design, companies need to take a few factors into consideration.

• Diversifying suppliers within different countries creates flexibility to meet the demands of your supply chain and network design provide the opportunity to switch or adjust the demands on certain suppliers with limited impact on your supply chain performance. Perhaps most importantly, the impact is understood ahead of time to communicate to all stakeholders.

• Planning is also crucial when including the impact of volatile tariffs into your network design for future proofing your supply chain. Future proofing your supply chain network against tariffs incorporates and provides for quick reaction times. This is increasingly important as we are seeing more and more complicated rules and regulations for international trade. The bureaucracy of changing countries alone can put operations at a standstill for months. However, if well prepared and the proper planning measures have been put in place, the impact on downtime and costs can be mitigated. Standardization of a company’s financials is imperative when incorporating

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tariffs into a supply chain network design. Clear communication of tax and duty obligations and prospects can make or break tariff implementation. Cost accounting must be robust enough to include various scenarios for evaluating and sending the proper signals within the organization. Most companies already have local tax policies in place. However, local taxes tend to be less volatile and much more predictable. Optimizing and aligning tax and operational considerations with standard P&L processes can be much tricky but a must when dealing with and international market.

enVista continues to assist our customers in strategic supply chain planning. These projects involve manufacturers that have issues with costs associated with tariffs, transportation, sometimes poor planning and both capacity and inventory challenges. In several cases our customers are able to mitigate tariffs by consolidating inventory and adding manufacturing flexibility at their manufacturing sites. Through inventory planning most customers were able to reduce imports by shifting sourcing such as imports to Europe through regional transfers from APAC to AMER and find millions of dollars in savings in transportation costs, tariff and duty taxes alone. After discovering the key factors of implementing tariffs it is time to decide resources that will help mitigate large swinging changes. China and the United States clearly come to mind. However, taking a longer view of trade outside the US and China is a good step when trying to mitigate tariff costs. As mentioned before, diversification is key.

Companies that will survive volatile changes in tariff policies will be the company that is the most agile, that is the quickest to evolve and can continually re-invent itself to exploit new opportunities and defend against sudden threats.

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Diversification is important and understanding the rules of how tariffs are applied and seek out opportunities to minimize is critical. Examining the Bills of Materials of your imported products is the first step to understanding the value and character of parts to assess the applicability of tariff rule changes based on substantial product transformation. In this process, companies can identify the key major manufacturing steps, noting the sophistication of the activities and where they are performed locations.

Breaking up your supply chain to diversify manufacturing, assembling and distributing in different countries based is an important task. This is accomplished through minimizing the total cost of tariff’s, and to leverage the skill set, technical capabilities and quality performance of various countries to select the best countries of origin. Lead times must also be taken into consideration when selecting a new vendor and country of origin.Recognizing tradeoffs of transshipment costs, market price difference, manufacturing costs and demand distribution is also important. You must be able to balance the costs, revenue and service levels within your suppliers. If a company creates agility by balancing the costs and benefits of fluctuating tariffs, they are more likely they are more likely able to withstand this new political climate.

Combatting these changes in tariffs is challenging and in order to help companies respond enVista utilizes a set of network design tools to help forecast a multitude of scenarios to identify new sources of supply. A robust, efficient and flexible network design focuses on future proofing your network against short and long-term threats. This will assist in thwarting off threats that have evolved in the recent political climate.

A long-term solution is to create a strategy for where to invest, source, serve under an integrated S&OP process. The S&OP process provides more agility and flexibility by managing consistency and mitigation plans around risks and manage action plans around opportunities. S&OP is executed frequently and collaborating harnessing the collective intelligence of all stakeholders across the supply chain. Network design is executed infrequently and in isolation within centers of excellence. This does not diminish the importance of network design but when you need to quickly respond to a new foreign policy, integrating tariff changes into a S&OP system may help forge the bumps in the road more adequately.

ConclusionThere are many factors to take into consideration to help mitigate the impacts of the recent and probable future political climates. Tariffs will continue to be volatile and the best way to integrate this volatility into your network design is through a company’s S&OP process. The S&OP process allows for agility and flexibility that help manage the ebbs and flows of the unstable political climate.

How enVista Can HelpNot all supply chain strategies are created equal. Partner with enVista’s deep bench of experts to create a long-term strategy for success. enVista’s Supply Chain Strategy team takes a holistic approach helping to align companies’ supply networks and operating models with business strategy. enVista’s expertise is designing robust and efficient supply chain networks for our customers. Our clients value the importance of having a strong network design to execute a high-performance functional business model. The recent political climate is a strong reminder that it is critical to incorporate rising and falling tariffs as a permanent criterion of a flexible network design.

Our consultants will:• Determine overall execution level of your current network• Model optimization and alternatives to your network• Identify the best locations to store and distribute products• Select the best mix of where and when to hold inventory

We will then leverage our vast array of industry-leading practices in inventory optimization, lean process improvement, transportation management, facility design, and solutions implementations to deliver a solution that is both fact-based and enables the goals of the company.

In addition to designing robust and efficient supply chain networks, enVista also helps customers bridge the gap between the traditional approach of doing manufacturing or sales forecasting as an exercise compared to using the forecast during daily order promising as well as measuring the accuracy of your forecasting process. Companies that integrate sales and operations planning (S&OP) into their daily planning and execution are equipped to address order forecast anomalies as well as production and capacity limitations.

Our Sales and Operations Planning process will enable your company to:• Optimize production and inventory costs• Synchronize between departments• Increase customer satisfaction by syncing your supply with demand• Lower costs by applying the correct resources in order to meet demand• Develop better accountability and teamwork by decreasing functional boundaries within

your organization

With solid, proven methodologies and the right modeling tools, enVista is an expert resource for solving complex supply chain network problems. We work with a broad range of industry verticals with specific industry challenges. We will help you minimize costs while maintaining service, and maximizing results, taking into consideration timing, cost and ease of implementation, end-to-end.

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Paul BarisDirector, Supply Chain Solutions

Paul is a supply chain expert with over 20 years of experience in industry as a Vice President of Supply Chain for several companies as well as a consultant implementing Sales & Operations Planning, Inventory Strategy, and Demand Planning practices. Paul’s strength’s include: Operational Performance, Root Cause Analysis, Lean & Six Sigma Methodology, Client & Vendor Liaison, Leadership, ERP, Strategic Procurement, Project Management, Warehouse Redesign/Implementation, Supply Chain Engineering, Statistical Process Control, 3PL Management, WMS, Demand Planning, Inventory Planning, Change

Management, S&OP, and Operational Layouts. Prior to Paul’s consulting career, he has served as Director of Supply Chain for Transamerica Auto Parts/Four Wheel Parts; Vice President Supply Chain & Logistics for Imperial Sugar; Vice President of Supply Chain Operations for United Food Group; and Vice President of Supply Chain for Maurice Sporting Goods. In the past, Paul has also been an Adjunct Professor of Supply Chain Management at Rochester Institute of Technology. Paul has a Master’s of Science in Business Administration from University of Rochester and a Bachelor’s of Science in Industrial Engineering from Purdue University. Paul is a certified supply chain professional from APICS, is Six Sigma Certified, and has a Certification in Supply Chain Management from the University of Tennessee. Paul’s professional certifications include: Change Management – Prosci ADKAR, Professional Negotiation – Karrass, Juran on Quality I & II – Kepner-Tregoe, Strategic Procurement – Stanford University, Statistical Process Control, Purchasing Strategy, Oliver Wight S&OP, and S&OP Implementation.

Haley RobertsConsultant, Supply Chain Solutions

Haley has more than six years of account and project management experience, including project management at Amazon. At Amazon, Haley led a team responsible for technical and large-scale furniture installations throughout the project lifecycles of multiple new construction projects. Haley’s multi-industry account management experience provides her a strong background in client relations and understanding the needs of the customer. Haley is able to leverage her account management and operational experiences to better understand, communicate, and translate client requirements into operational solutions that work. Prior

to joining enVista, Haley studied in Barcelona, Spain and earned her International Master of Business Administration (MBA) with an emphasis in Program Management. Haley’s studies abroad further enhanced her understanding of and appreciation for the value of multiple perspectives, while strengthening her ability to lead and manage teams from different cultures and viewpoints. Haley earned her undergraduate degree from University of Wyoming and her International MBA from EAE Business School.