Armanino: How Manufacturers can Adapt Amid Growing Trade War

A trade war is in full swing, with the US and China dealing some vicious blows. 

Meanwhile, manufacturers and distributors face mounting pressure from tariffs that are threatening profit margins and disrupting established supply chains.

Clearly, the impact of these economic measures requires strategic responses across operations, supply chain management and long-term planning.

The ripple effect of tariffs 

Trade tariffs have created significant challenges for manufacturing operations worldwide, forcing businesses to reconsider everything from production locations to material sourcing.

These added costs come at a time when many organisations are already struggling with other economic pressures.

Colin Dowd, Industry Strategy Senior Manager at Armanino, emphasises the importance of operational efficiency in response to these challenges: "To mitigate an increase in expenses, manufacturers and distributors can focus on lean production and efficiency, such as minimising all non-value-adding activities and improving operational efficiency.

"Some tactics to achieve this may include automation, as businesses often no longer need to invest in large-scale projects to gain efficiency through automation."

The ripple effects of tariffs extend beyond immediate cost increases, potentially reshaping entire industries as companies adapt their strategies to maintain competitiveness in this new economic landscape.

Strategic cost-cutting measures

When facing increased costs due to tariffs, manufacturers must identify areas where expenses can be reduced without compromising product quality or operational efficiency.

"Strategic budget realignment is also an important factor," Colin continues. "Manufacturers and distributors should take the time to build their budget from the ground up, allowing for a thorough examination of all expenditures.

"This approach ensures that money is moved from low-impact projects to high-value projects, optimising financial resources."

Technology investments, despite their upfront costs, often deliver long-term savings.

Colin suggests that manufacturers and distributors should consider investing in energy conservation technology and replacing outdated equipment, adding: "Upgrading outdated technology can enhance production capabilities while cutting down on long-term costs."

Personnel reorganisation represents another critical area for potential efficiency gains.

"Implementing performance measures and establishing clear roles and responsibilities ensures that the entire team is aligned and working toward the same objectives," says Colin. 

Supply chain adaptations

The imposition of tariffs has forced many companies to reconsider their supply chain structures, with diversification becoming essential for resilience.

"By identifying new suppliers from domestic or international markets, manufacturers can break their dependency on tariff-affected markets, thereby reducing the risk of price fluctuations," Colin explains.

"Nearshoring or reshoring is another option to explore. Moving production closer to key markets can help cut transportation costs and minimise the risks associated with long-haul supply chains."

Morevoer, inventory management practices must evolve in response to tariff-related challenges.

"Real-time tracking and advanced demand forecasting systems can be leveraged to better control inventory and enhance supply chain management," Colin notes.

Regular vendor contract reviews provide another opportunity for cost optimisation. Colin recommends that companies regularly review contracts to "verify that terms are being met while also rediscovering areas where potential savings may exist". 

Data-driven decision making

The complexity of navigating tariff impacts requires sophisticated analytical approaches.

Manufacturers increasingly rely on data to inform strategic decisions around sourcing, production and market positioning.

Colin emphasises the value of predictive analytics in this context: "Analytics and forecasting tools can be used for tracking market trends, supplier performance, and material costs. For example, manufacturers and distributors could forecast the financial impact of tariffs by using predictive modelling, allowing for proactive decision-making."

Scenario planning has become essential for businesses operating in uncertain tariff environments.

"By evaluating the robustness of the supply chain, manufacturers and distributors can design contingency plans based on different market conditions, ensuring they are prepared for a range of potential disruptions," says Colin. 

Long-term strategic initiatives

Beyond immediate tactical responses, manufacturers must develop long-term strategies to thrive despite tariff challenges.

"Innovation in materials is a long-term strategy that manufacturers and distributors should consider," contends Colin.

"To reduce dependence on steel and aluminium, companies should invest in research on alternative or recycled materials. Innovation can help make products unique and more competitive in the market."

Collaborative approaches offer another pathway to resilience: "By forming alliances with industry peers, businesses can share logistics, costs and investments in new technologies. These collaborations help distribute risks while strengthening the overall industry."

Culture also plays a crucial role in adapting to tariff-induced market shifts. Colin emphasises that, to be able to respond better to market changes, it's important to build an agile organisational culture – "a culture of rapid adaptation and continuous improvement". 

Finally, technology investment remains a cornerstone of long-term tariff response strategies.

"Automation can often help workers operate more efficiently, enabling them to focus on areas where they are most skilled," Colin concludes. "By strategically implementing technology, businesses can optimise their workforce while improving productivity."

As trade tariffs continue to shape the global manufacturing landscape, those companies that implement comprehensive response strategies across cost management, supply chain optimisation, data analytics and long-term innovation will be best positioned to maintain their competitive edge amid challenging market conditions.

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