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Risk du Jour: Are You Equipped to Understand the Impact of Tariffs on Your Business?

Risk du Jour: Are You Equipped to Understand the Impact of Tariffs on Your Business?

Why is today’s trade crisis (and every other crisis that comes along) so difficult for OEM suppliers to assess impact. Plus a suggestion for fixing it.

The “risk du jour” for manufacturers is trade barriers and tariffs. I notice across many industry-wide supply chains that suppliers have great difficulty assessing where the risk is for each of their enterprises. Across the total book-of-business, each manufacturer has to determine where the risk is, quantify the risk, prioritize risk to address and then determine any addressable alternatives. How can this improve? By migrating your commercial management out of spreadsheets and into database software.

Don’t look only at your supply chain. There are two directions for analyzing your risk:

  1. Supply chain - Yes, cost risk garners much of the press coverage. It is critical to focus on where you are sourcing materials and components that may become subject to increased tariffs.
  2. Book-of-business with customers – Revenue risk is much less obvious. What business might you lose from your key customers where you are your customer's high-cost risk. You should be aware of business your customers might resource to competitors.

Today’s supply chain risk. Finding and quantifying the risk is not easy. A primary data source for supply chain risk tends to be company ERP systems. Historical data on the current production business resides there. Sometimes, too, ERP hosts current master cost data and corresponding vendor relationships. Still, many companies have current master cost data outside of ERP systems in spreadsheet files. This is an even higher hurdle to analyzing supply chain tariff exposure. Lots of work is required to couple spreadsheet master cost data with every part’s BOM and ERP shipments data.

Total book-of-business revenue and supply chain risk. Your analysis must look forward, too. In longer lead manufacturing industries like Automotive, you need to assess your future business. ERP data is not enough. It only looks backward at the business you produce now. There is a large quantity of awarded business you will start producing over the next few years. You’re also quoting a variety of new business opportunities. None of this business resides in your ERP system. Auto suppliers don’t have databases in place to search across all of this business. It's in myriad spreadsheet files. Each piece of business, its bill-of-material cost model and its vendors lives in an individual Excel file. And they’re aging, not linked to current master cost data. The sales plan has to be coupled with each of these to quantify total risk. That sales plan is usually in a spreadsheet as well. Per the graphic below, good luck generating the risk analysis for the total book-of-business...

risk2

ABOVE: Sources of data mapped along commercial lifecycle of a typical OEM supplier. Combining total book-of-business for risk analysis gives the most complete, actionable revenue and supply chain risk analysis. The state of commercial management tools for suppliers makes this nearly impossible.

The downside of being slow or incomplete in assessing total book-of-business trade risk analysis includes:

  • Nimble competitors lock up the alternative supplier capacity earlier, and you’re shut out
  • Propagating expensive sourcing mistakes within your blind spot of Awarded and Quoted business by unknowingly maintaining expensive supply chain sources for materials and components in spreadsheet BOMs
  • Blindsided by not preparing for loss of revenue among customers where you are the risk, and could be resourced

The upside for nimble companies is resourcing business to localized suppliers before competitors max out alternative vendor capacity, and an aggressive commercial strategy to sell your advantaged local capacity. Take advantage of the trade barriers to take business away from competition.

Transforming your commercial business processes into database software will yield immediate substantive analysis to the current trade challenges. You'll also be ready to nimbly analyze impact of most other risk situations.

risk3

When commercial management takes place in database software, the more consistent, high-integrity commercial forecast data can be readily connected to BOMs and master cost data housed in other applications running your business. This yields on-demand revenue and supply chain risk analysis across total book-of-business for the enterprise. Additionally read: “Master Data Strategy for Smart Manufacturers Now Includes Commercial Management”

Uniting your disconnected commercial data and cost data is critical, as it is the building blocks of seeing/analyzing the risk across your total book-of-business. Hacking away at commercial activities, like sales forecasting and costing/quoting, in a collection of spreadsheets will never let you harness a valuable rolling forecast with cost and vendor data for critical risk analysis. A commercial management system approach that captures master data effectively upstream when it is a Quoted-status commercial opportunity, and follows each piece of business through to Production, solves these challenges. It combines updated BOM information with rolling sales forecasts for your Production business, Awarded business and Quoted business. This not only makes data far more consistent in ERP when business ultimately begins Production, but also unlocks transformative book-of-business risk visibility for manufacturers when accommodated in an overall master data strategy.

risk4

Seeing and sizing trade risk across enterprise book-of-business becomes readily accessible analysis when leveraging databased commercial management software. Sales forecasts for entire book-of-business are integrated with BOMs and current master cost and vendor data. Source: Saphran Layers business intelligence tool.

Notice the repeating risk analysis pattern yet? There's always a crisis du jour…and a corresponding inability for manufacturers to analyze its impact. Today it’s trade and tariffs. Nimbly executing enterprise book-of-business risk analysis applies beyond current trade and tariff upheaval to other ongoing risk analysis like currency exchange rate fluctuation, OEM market volume shifts, etc. Unless you replace spreadsheet-based commercial processes for opportunity management, forecasting and costing/quoting with databased software, get used to the difficulty around harnessing data, determining risk and prioritizing actions before your competition does.

--John Brennan, EVP & Chief Strategy Officer, Saphran, Inc.


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