Tariffs and Trade War Fears Provide Yet Another Reason to Build a Culture of Continuous Modeling

In response to the announcement of the United States’ proposed tariffs on steel (25%) and aluminum (10%) imports, analysts have made numerous predictions on how this will affect both foreign and American manufacturers, their supply chains, and their customers, particularly within the construction, auto, energy, and packaging industries.

Subsequent administration announcements of additional proposed tariffs on specific imports from China have economists and companies alike concerned over how these tariffs may too affect raw material pricing, sourcing, demand, client availability, etc. And yet most organizations, with some degree of exposure to such actions, are ill equipped to quickly quantify the impact of these proposed actions.

However, as the very short and informal list below indicates, political and market uncertainty related to the cost of doing business is not new.

The 2016 UK voter approval of the Brexit referendum
In 2013, the U.S. released new Hours of Service rules limiting commercial drive time
In 2010, Germany mandated 45% renewable electricity generation by 2030; six months later Germany also mandated closing nuclear power plants in response to Fukushima
In 2009, US imposed a 35% tariff on imported Chinese tires
Throughout 2007 & 2008, crude oil prices doubled

As a result, organizations should bear in mind the notion that the less predictable something tends to be, the more a robust network model is needed to quickly evaluate the impact of unforeseen change. Rather than trying to foresee various possible changes, companies that adopt a culture of continuous modeling can quickly determine how sensitive their supply chain operations are when the need arises.

We encourage establishing a culture of continuous modeling, whether conducted internally or through an external firm, as a way to mitigate recurring uncertainty related to the cost of doing business. Companies operating without a continuous modeling culture will often find themselves with a four month runway to even begin figuring out how potential political and economic events could impact supply chain cost and what mitigating adjustments could be taken. In contrast, companies with a continuous modeling culture could identify potential adjustments in a matter of weeks.

Future supply chains will continue to witness new levels of complexity and volatility. Establishing a culture of continuous robust network modeling gives companies a powerful tool to quickly respond to such unforeseen events.

Steve Ellet, Vice President, and Jeff Zoroya, Director, are senior members of Chainalytics’ Supply Chain Design practice where they focus on helping organizations optimize their supply chain network strategy.

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