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Industry Uncertainty Demands New Strategies for Costing

Global trade has never been a simple, straightforward endeavor, but recent fluctuations in tariff and trade policies have made it more complicated than ever.

For sourcing professionals whose job it is to facilitate global supply chains, even small shifts in global trade rules can have a huge impact. This is especially evident when avoiding margin erosion because of increased tariffs, taxes or duties. Yet, in today’s environment, these are changing frequently as the trade wars rage between the U.S. and China. Determining accurate total landed cost is difficult in a normal setting, but with so many variables to account for, how do trade professionals know what is true at the right moment in time?

Leveraging ‘what-if’ costing scenarios

The best strategy to avoid getting caught by surprise is to use technology to conduct “what-if” costing scenario simulations. This line-by-line cost calculation is based on landed cost–the aggregated cost of sourcing and delivering the product to the end user. A landed cost calculation not only accounts for the purchase price and transportation costs, but also inventory carrying costs, tariffs and a risk variance associated with stock-outs or line shutdowns, among other variables.

Alongside this highly detailed cost information, global sourcing professionals must also consider import controls, duties, freight costs and many other factors with each purchase decision. Importers and exporters must have a clear understanding of estimated landed cost to correctly set prices, make accurate sourcing decisions, and assess transportation options. It is vital to calculate the total landed cost outcomes for multiple sourcing scenarios, while also adhering to the most current tariffs and duties.

Paper, pen, and a calculator aren’t going to help solve these complex equations. In the same regard, spreadsheets with static data will only go so far. The number of variables that go into calculating total landed cost and weighing the number of potential scenarios makes manual computation impossible. Technology solutions that offer real-time updates on tariff and duty changes, alongside historical shipping data, will more accurately calculate the transportation spend and total landed cost.

Turning to technology

What makes a good technology solution? Shippers should have access to a database that houses all applicable duties, taxes and fees associated with their international shipments. There should be constant maintenance of the database to capture the most up-to-date rates, particularly when trade policies are in flux. Just this year, the world has seen billions of dollars in new tariffs on a wide range of items. The best technology solutions will capture these changes so you can accurately calculate the new landed cost.

This level of visibility, agility and data-sharing requires companies to implement a digital supply chain execution platform; moving from silo-based, inward-facing systems to an interconnected, single solution platform that can provide a broad and deep set of capabilities for the global supply chain. The platform should also provide a digital model for sourcing, logistics, trade operations, and trade compliance– allowing for cross-functional collaboration, automation and analytics.

With a digital supply chain that fully supports what-if costing, companies can surge past their less technology-proficient peers when changes occur to any of the variables (country of origin, component, supplier, transport mode, tariff, and more). Organizations will be better equipped to make split-second decisions based on hard data and analytics, whittling away the uncertainty. A fully digital supply chain:

  • Supports innovation during both the design and product development stages.
  • Supports management of raw materials supply and demand.
  • Facilitates factory production monitoring with management-by-exception reporting, allowing early warning of missed events that impact downstream.
  • Facilitates collaboration with trading partners, factories, freight forwarders, and other integral pieces of the supply chain.
  • Promotes flexibility to easily switch trading partners if required to respond to sudden impactful events or tariff shifts.
  • Calculates total landed cost including logistics, commissions, duties, taxes, etc.
  • Fully integrates what-if costing scenarios utilizing historical and current data for the tightest analysis.

These features aren’t just nice to have, they’re now required for companies to maintain agile supply chains and stay ahead of potential risk factors—all while keeping an eye on the bottom line.

Getting agile

We trust our smart phones to keep our schedules, wake us up in the morning, and get us to our destinations. They also keep us connected to the people and information all around us, 24/7. Digital supply chain execution technology is just as essential for the smooth operation of global trade. Fast and efficient, global trade management software keeps all relevant data at your fingertips, helping you make split-second decisions and prepare for a multitude of potential scenarios that could drastically—or even slightly—alter the trade landscape.

Global trade management technology that incorporates in-depth and agile what-if costing scenarios will help companies identify, plan, and react appropriately to almost anything that can be thrown their way.

 

Gary is responsible for developing strategic product marketing direction and presenting the Amber Road brand and solutions worldwide. As the platform evangelist, Gary develops and launches customer insights, go-to-market plans, product messaging and content, and field marketing tactics which establish Amber Road’s solutions as a standard in the Global Trade Management space. 

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