Originally appeared in Area Development
Type “tariffs” into the news section of a search engine on any given day and you’ll come across a brand-new set of headlines from international media outlets — implementation dates, goods being taxed, countries being impacted, etc. CNBC recently reported1 one-third of executives on Q2 earnings calls cited tariffs as a potential headwind. What we’re not seeing in the headlines is how accounts payable (AP) and procurement teams are impacted.
One of the main complaints we hear from companies in regard to the tariff rollercoaster is how they’re more disruptive than destructive to their businesses; subsequently, they struggle with the fact that there’s no clear sense of permanency. No one can predict when or what the next round of announced tariffs will be. In fact, it was recently announced that some of the tariffs will be delayed until December 15. This unpredictability creates a blind, uphill battle for CFOs, who are tasked with making sure company finances are in order, while anticipating and preparing for regulatory changes.
Taking a Look at the Supply Chain
In discussions with our partners, we’re seeing a common theme among the most financially stable companies. CFOs, AP, and procurement teams alike are able to rattle off answers to questions such as:
- Which suppliers can I renegotiate contracts with to free up cash reserves?
- Even if we’re not impacted, are our competitors? How are they adapting? Can we use this as a market opportunity to increase production?
- What is the percentage base of foreign parts in my product? What intermediary steps can I take to qualify my product differently, so it avoids a tariff?
- Where is my manufacturing currently taking place and how diverse is my supply chain? Is nearshoring an option?
Trade tensions brought about by the lack of permanency on tariffs are leading many companies to take a look at their supply chains and see where else they can establish operations. Beyond having a strong pulse on a company’s individual supplier base and market opportunities, we’re also seeing companies explore manufacturing operations in Central Europe. Poland and the Czech Republic are becoming hubs for manufacturing in medical devices, automotive, technology, and textiles.
Compiling Actionable Data
A harsh reality is too many Fortune 500 CFO’s don’t have access to the right kind of data to answer these questions and make informed decisions — the kinds of decisions that can greatly impact bottom lines. They need visibility into supply chains and actionable data to share with C-suites and board members.
Many companies have systems in place for extracting internal data, but they should be looking at outside data as well. Aside from being complex and time-consuming to extract, internal data often has gaps in the information CFOs need to make decisions. Whereas data received by third parties can cover everything imaginable — from company and competitor information to different demographics, weather patterns, employee sentiment, etc.
Joining at GPO
We’re also seeing a rise in the number of participants in group purchasing organizations (GPO). Think of a GPO as a wholesale club that allows thousands of companies to make purchases at scale. In addition to their significant value and buying power, they also collect third-party data. Here’s how they simplify the purchasing cycle:
- Transaction management — From purchase order creation to payment application, each step in the transaction process is centrally managed (including invoices, disputes, payment status, etc.).
- Invoice consolidation — Instead of multiple supplier invoices and due dates, members receive a single monthly statement with a consolidated view of their purchases for full visibility.
- Payment consolidation — On the other end of the payment spectrum, GPO members issue a single monthly payment, cutting down the administrative burden of making multiple payments.
- Supply chain financing — Many solution providers today assume your suppliers’ credit risk by extending purchasing credit directly to the members, providing them more purchasing flexibility across all of a GPO’s suppliers. This allows suppliers the option to get paid early on invoices; last I checked, they still like that.
- Business intelligence — This point goes back to having the right data. GPOs provide visibility into purchasing behaviors and trends that can easily be leveraged in supplier negotiations. This can go a long way when it comes to freeing up cash reserves and preparing for unexpected tariffs.
Taking a Macro- and Micro-Level View
Since many companies are integrated through partnerships and supply chains, they’re affected by factors outside of their enterprises. They’re impacted by those in their network as well as economic, political, and environmental factors. This is all the more reason to need macro- and micro-level views into possible opportunities their businesses could benefit from or uncover latent risks that could negatively impact company finances.
With the right level of data, communication, and transparency, businesses can anticipate price changes. We’re seeing finance teams maintaining closer levels of communication with their supply chain teams to anticipate changes and be better prepared to renegotiate, identify alternate suppliers, and approach stakeholders to discuss budget increases to offset surcharges in products or materials.All supply chain partners are in the same boat — no one knows exactly when, where. or how tariffs will be enacted and how their businesses will be affected. But if CFOs are able to answer some of the questions posed above, then the impact of tariffs on their companies and suppliers can be limited.