A global tariff war is underway, and it’s putting your business at risk. But—as every adversity presents an opportunity—the tariff situation also gives your business a reason and motivation to optimize certain elements of the supply chain.
Successful American manufacturers with global supply chains must optimize short- and long-term decisions to balance customer and company imperatives, market and non-market factors, and cost and profitability analysis. U.S. and global tariffs, in a relatively stable environment, affect these decisions; in a volatile environment or a trade war like we are experiencing now, dramatic swings in global tariffs can completely upend a previously successful strategy, put U.S. jobs at risk, or even threaten the livelihood of some businesses.1
Tariffs materially and immediately affect the cost of certain goods from certain countries—imposing an effective 25 percent surcharge on many items. To offset these tariffs, manufacturers face a number of options: absorb the extra expense, pass along higher costs to the consumers, switch suppliers away from tariff-burdened countries to non-tariff burdened countries, or consider alternative supply chain investment strategies. Recent news articles report many such examples, including:
Current news stories have focused on the trade war with China and the three rounds (in three months) of immediately imposed U.S. tariffs on a wide range of raw materials, semi-finished goods, and finished products coming from China. The undeniable reality is that decades of relative stability have resulted in decisions where global supply chains are dependent on China—in fact, the Peterson Institute for International Economics estimates 85 percent of the Chinese products hit by the initial Trump tariffs are machinery and components used in finished goods made in the United States5—and Trump’s multiple rounds of tariffs directly target this dependency.
Understanding the impact of these tariffs on a global supply chain is a monumental task. Impacts change quickly, with whole categories of goods becoming included or excluded on a daily basis, and tariff rates changing to either 10 percent or 25 percent overnight.
To analyze this fluid situation and help us become proactive in the face of this volatile environment, Nortek Security & Control leverages the power of Incorta enterprise analytics to mitigate impacts and be nimble in optimizing strategic decision-making in the face of these challenges. Here’s how we do it.
First, some background on the tariffs and how they specifically impact Nortek Security & Control.
The tariff situation—and its associated deadlines—is volatile and unpredictable. Each tariff tranche is subject to a “public notice and comment period,” during which time proposed tariffs on a recommended set of categories (Harmonized Tariff Schedule Codes, or “HTS Codes”) of goods are considered. Public debate, lobbying, and politics transform this list and the tariff rate to a final list, which is then enacted.
The first tranche—including a 25 percent tariff on $34 billion of imports from China6—went into effect July 6, 2018 with very little advance notice to impacted manufacturers. In rapid-fire succession, a second tranche was proposed, considered, revised, and scheduled to go into effect in late August, and a third cycle is currently in notice period through early September.
Initially, our Nortek team tackled this problem by using financial spreadsheet data we had at our disposal and looking at the initial list of proposed HTS codes. A week of manual analysis produced a presentation given to the Executive Team and the Board of Directors that proved woefully insufficient in answering the myriad of peppered questions encompassing all aspects of the supply chain, customer impacts, product pipeline, profitability analysis, scenario modeling, and sensitivity analysis. Then, the situation became exponentially worse as tariff categories and rates started to change daily—the team was constantly scrambling and using week-old data to answer week-old questions.
Incorta to the rescue.
Fortunately, at that very moment, we were in week four of a six-week project converting our previous data warehouse to a next-generation data platform built on Incorta’s enterprise analytics, and we decided to throw this tariff challenge at Incorta as our first effort.
Already in Incorta was our financial, enterprise resource planning (ERP), and supply chain data from Oracle NetSuite; data from our sales, inventory, and operations planning (SIOP) system; and logistics and other supply chain data from other systems. We layered on top of this data the government data of proposed, active, and ever-changing tariff codes and rates, and built Incorta data analytics dashboards on top of all of it.
The Incorta-driven insights were dramatic and immediate. We instantly saw how different tariff tranches and proposals would impact our product lines, customers, and inbound purchases from suppliers which were scheduled to (or would not) arrive in time for particular tariff enactment dates.
But that was just the beginning.
Incorta allowed us to conduct immediate and sophisticated what-if analysis:
Unlike alternative analysis solutions, creating and refining data analytics insights in Incorta takes only minutes or hours instead of days or weeks. And using Incorta preserves the ability to layer this analysis on top of constantly live data that reflects to-the-minute changes in customer orders, our supply chain, and all the data in NetSuite and other systems.
This initial tariff effort was a “light bulb” moment for the entire team, highlighting the power and flexibility of data analytics on the Incorta platform. It became instantly easy for departments to fast-track transition away from more cumbersome legacy analytical approaches and move to Incorta as our preferred data analytics solution.
Incorta allows us to be proactive and strategic in our response to tariffs.
Because of the power of Incorta, we are proactive rather than reactive in our response to the tariff situation—we make precise, focused decisions instead of having to resort to broad-brush reactions across the whole business.
Incorta also transformed our executive- and board-level discussions. Instead of stalling on questions that linger and beg for subsequent post-meeting analysis, we use Incorta during meetings to go through what-if scenarios and answer complex questions in real time. Because of this immediacy, we can drive to precise decisions more frequently within the meeting itself. When you’re dealing with a situation that has such profound and immediate impacts as the tariff issue does, this kind of interactivity and access makes all the difference in the world.
Before Incorta, to even try to accomplish this same result, I’d have to have a really smart team who had already completed all of the analysis on all of the questions they predicted would be asked and have all those answers ready, just in case.
With Incorta, we have a different mindset: build and deploy the tool, then let decision makers interact with it to ask questions and receive insights on their own. We don’t have to know all of the questions we want to ask ahead of time because Incorta’s Direct Data Mapping and self-service architecture allow us to build tools—and constantly and quickly improve them—to answer these types of questions on-the-fly.
Want to see how the global tariff war will affect your entire business? Schedule a personalized demo and we’ll show you how Incorta can help.
1 Tax Foundation, “New Analysis Shows how Input Tariffs will Impact U.S. Manufacturing Sectors.” July 16, 2018.
2 CNBC, “Tyson Shares Dive More than 7% After the Company Cuts Profit Outlook because of Tariffs.” July 30, 2018.
3, 4 Bloomberg, “ArcelorMittal Joins Small Group of Companies Who Love Trump’s Tariffs.” July 17, 2018.
5 Moneywatch, “U.S.-China Tariffs: What’s Behind Them, Who could be Hurt Most?” July 5, 2018.
6 Financial Times, “What’s at Stake in US-China Trade War.” July 19, 2018.