Tariff increases put global supply chains under pressure
Ensuring the future security of international supply chains with the help of mathematical optimization
The framework conditions for international trade and economic policy have changed significantly in recent years. Geopolitical tensions and trade wars have created additional uncertainties. While new trade agreements are emerging, others are being terminated and many countries are adapting their customs policies to protect their economies.
With Donald Trump once again taking office as US President, the situation has deteriorated further. Trump plans to impose tariffs of over 20 percent on imported goods. These measures, which primarily affect the automotive industry, the chemical industry, mechanical engineering companies and consumer electronics manufacturers, are aimed at strengthening the US economy and could lead to new trade conflicts.
In this blog post, we look at the far-reaching effects of tariff increases. We also present methods for mathematical optimization that help companies adapt their strategies to ensure the resilience of their supply chains and increase their efficiency.
Customs duties have a direct impact on supply chains and networks
The current changes in the international trade landscape have far-reaching effects on the future security of supply chains and the design of production and distribution networks. Companies must adapt to these dynamic conditions in order to ensure their competitiveness in an increasingly complex global market.
Influence of customs duties on procurement
The current developments in trade policy are presenting companies with considerable procurement problems, as the increased import duties are leading to a noticeable increase in costs. The additional expenditure in the form of tariffs on imported raw materials and components is a burden on company budgets and has the potential to increase prices for end consumers. This jeopardizes the competitiveness of companies and forces them to rethink their procurement strategies, as supplies from certain regions become less attractive due to the increased tariffs.
Effects of customs duties on the production network
The production of components and end products plays just as decisive a role in the economic success of a company as the procurement of materials. Customs duties therefore also have a significant impact on existing production networks. In view of the increased costs, companies are being forced to rethink their production strategies and redesign their networks. Many of them are considering relocating production to countries that offer lower tariffs or more advantageous trading conditions in order to optimize their overall costs.
Finding the balance for a long-term increase in EBIT
Overall, a volatile market environment with rising tariffs is exerting considerable pressure on companies' cost structures and is therefore having a profound impact on global supply chains. In view of these challenges, companies are being forced to fundamentally rethink their procurement, production and sales strategies. The aim is to reduce end-to-end costs while developing a strategic resilience that ultimately improves long-term EBIT.
Changes in production and distribution networks have a significant impact on efficiency and costs. New framework conditions and logistical challenges require a balanced consideration between customs savings and operational costs. This makes it difficult to adapt to advantageous customs and duty structures and also increases the complexity of supply chains.
Mathematical optimization as a solution to the challenges of current customs policy
In view of the complexity of this problem, it is almost impossible to find a real optimum, taking into account all dependencies, in a manual planning system such as Excel. Mathematical optimization offers a decisive advantage in overcoming the challenges arising from current developments in trade policy by enabling companies to take a holistic view of a large number of restrictions. The use of mathematical models makes it possible to make scientifically sound decisions, which enables companies to adapt their strategies in a targeted manner.
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Safeguarding supply chains against trade wars and geopolitical tensions with OPTANO
In times when international trade conditions and regulatory requirements are constantly changing, innovative planning software such as OPTANO makes it possible to precisely analyze the impact of customs duties and taxes on overall costs and profitability. OPTANO thus enables companies to comprehensively evaluate customs policies and their potential impact on the supply chain using mathematical methods and to act proactively.
Modeling the entire supply chain - taking customs duties into account
The OPTANO solution for network optimization makes it possible to convert the existing supply chain easily and without in-depth mathematical knowledge into a mathematical model that maps the various components in a structured way. In addition, the effects of customs changes can be easily taken into account by making adjustments to individual or multiple locations with just a few clicks.
Adaptation of the supplier strategy
In view of the higher customs duties, it is crucial to carefully check the sources of supply for raw materials and components. Some raw materials are only available from certain countries, so duties must be accepted. For other materials, however, geographical diversification can be considered.
The OPTANO solution for network planning provides support here by making it possible to firmly define certain suppliers and at the same time offer a selection of different potential suppliers. The underlying mathematics finds the optimal supplier constellation, taking into account the overall effect on the network. In this way, geographical diversification can help to mitigate the negative effects of tariff increases and make procurement strategies flexible.
Adaptation of the production network
In the face of rising tariffs, companies are often forced to rethink their production strategies, which may also require the relocation of production facilities, although such changes cannot be realized in the short term.
Alternatively, companies can adapt their product mixes at existing locations in the medium term. For example, the planning of production sites in the USA could be optimized so that additional new variants are introduced there and the quantities of existing variants are reduced accordingly. If it is necessary to add variants from other locations, the OPTANO solution for network optimization enables a precise evaluation of these trade-offs in order to make the best possible decision.
Scenario comparisons for the best decisions
A key advantage of OPTANO's network optimization solution is its ability to take into account the effects of various Scenarios comprehensively. Scenario comparisons and clear visualizations can be used to quickly evaluate different strategies so that the optimal solutions for improving networks and supply chains can be determined. This enables companies to make targeted decisions on how to relocate resources and adapt their procurement and sales processes.
The decisive factors for these optimizations include, for example, product plan allocation, various make-or-buy options and adjustments to material flows.
Resilience through transparency
Another outstanding feature of OPTANO is the transparency created by consolidated data analysis. Companies get a clear overview of their capacities, volumes and (customs) costs. This transparency improves their risk management and strengthens their decision-making. Comprehensive analyses make it possible to identify potential disruptions in the supply chain at an early stage and create the basis for better and more informed decisions.
OPTANO for future-proof supply chains
OPTANO enables companies to effectively secure their supply chains against trade wars and geopolitical tensions by offering decisive advantages in analysis and planning. Precise modelling of the entire supply chain enables a rapid response to changes in customs legislation, which in turn optimizes procurement conditions and production strategies in a targeted manner. This enables companies not only to better manage potential risks from customs changes, but also to strengthen their resilience to external challenges.