Tariffs and Trade War: What Should Supply Chain Executives Do?

Trade Wars! It’s on everyone’s mind, especially with the new tariffs the United States and China have imposed on each other. It’s not like there aren’t already enough risks and disruptive forces in supply chains and logistics. Why should supply chain executives care about these threats? What actions should they take today to respond effectively? What capabilities are required to adequately explore and analyze the many “What If” questions companies should be asking?

Those are some of the questions I explored with Toby Brzoznowski, Co-Founder and Chief Strategy Officer at LLamasoft, in a recent episode of Talking Logistics.

Tariffs: Upsetting the Balance

Why should supply chain professionals worry about what’s happening with tariffs, trade agreements, and other global trade activity? “Supply chains today are very complex and global, with suppliers and customers in many countries,” explained Toby. “As a result, materials and products are moving across borders all the time and that involves costs. Since supply chain expenses are one of the biggest costs for businesses, anything that varies can mess with your margins and profitability and destroy the delicate balance you’ve established. If you add a 20 or 30 percent tariff on top of [existing costs] you can really cause panic in the supply chain.”

Endless “What If” Questions

Managing a business proactively involves an endless series of “What If” questions. What if we introduce this new product? What if we get serious about e-commerce and offer next-day service? And now, what if these tit-for-tariffs continue to escalate? How do you answer all of these questions fast enough to at least stay on par with your competitors?

Toby says the answer is “you have to build a ‘digital twin’ or model of your supply chain incorporating all of its complexity, including all of the policies that govern how the supply chain runs, all of the associated costs, where you’re sourcing from, where you’re making and stocking your product, where your customers are, etc. If you have this digital model, you have a sandbox where you can experiment with these potential changes and test out the impact in the digital world without affecting the physical world.”

Toby went on to note that many companies began this “what if” journey because they had a specific event or opportunity facing them and they wanted to understand the ramifications of various options. “They soon recognized, however, the extreme difficulties in gathering all of the data needed and that there were many more questions they wanted answered as well, and they didn’t want to go through the horrendous data gathering effort all over again for each question.”

It’s Not Rocket Science

There has been a perception in the industry that gathering all of the data and answering these difficult “what if” questions requires PhDs who can understand and analyze the complex questions and math around them. Many large companies have built operations research departments to do this. Toby points out, however, that the pace of change has accelerated to a level where that approach is no longer fast enough or flexible enough to keep pace with the changes. Today, companies need tools that digitally collect and consolidate the data from many sources and then provide user-friendly analytics and solvers for business users to quickly analyze and act on the information through an app-based approach.

Toby explains, “Think of it like a web-builder tool. You don’t need to know anything about coding to go into one of these tools and build your website. That’s the approach we’ve taken with our tool. You don’t have to know anything about the data management and operations research complexities under the cover in order to quickly analyze your supply chain issues and evaluate your options.”

Leveraging a Supply Chain Digital Twin

Toby and I discussed many other topics related to global supply chain management, too many to summarize here. Therefore, I encourage you to watch the full episode to learn more about gathering the data for your supply chain digital twin and how companies like HP, Michael Kors and many others are leveraging their supply chain digital twin models to analyze their operations and answer the “what if” questions so important to future success.