How to manage the impact of potential tariffs on your supply chains
The possibility that tariffs will be imposed in the United States on imports of goods from Canada and Mexico could have a significant impact on supply chains. Considering that the United States is Canada’s largest trading partner, how can you mitigate the impact and take advantage of the new business opportunities that could arise from this major change?
Caroline Biltchik, Senior Business Advisor and Bénédicte Vaugeois, Business Advisor, both with BDC Advisory Services, share tips on how to mitigate the impact of potential tariffs on your supply chains.
Understand the new policies and determine the impacts
The first thing to do if a new tariff is imposed is to remain calm and take the time to learn how the tariffs apply.
For example:
- Is my industry affected?
- What percentage will be applied and on what value at customs?
Having a good understanding of your new business environment will enable you to properly determine the impact of the new policies on your costs and prices.
“It’s important not to make any hasty decisions,” says Biltchik. “You first need to assess how much the new rules will cost you and try to find solutions to mitigate the impact.”
You need to look at your contracts and work with your business partners to find solutions.
Bénédicte Vaugeois
Business Advisor, BDC Advisory Services
Reassess your markets
The imposition of tariffs is also a time to step back and review your markets.
“You have to fully analyze the situation and ask yourself whether, given the circumstances, your company still wants to be exporting to a country that imposes tariffs,” says Vaugeois. “Is it still as profitable to do business there or would it be better to develop other international markets, or explore the potential of domestic markets? Diversifying your customer base also means reducing your dependence on a market and increasing your company’s resilience in the face of instability.”
Businesses need to diversify their customer base because it’s never a good idea to put all your eggs in one basket. And there will be opportunities.
Caroline Biltchik
Senior Business Advisor, BDC Advisory Services
Canada has 15 free trade agreements with 51 countries, covering 61% of global GDP and 1.5 billion consumers. Interprovincial trade could also provide opportunities for diversification. Some of your competitors’ market shares inside Canada, for instance, could also be compromised, creating opportunities for your company.
Diversify your supply chain
The introduction of tariffs is also an opportunity to determine if the supply chain can be diversified.
“There is no doubt that if a tariff is imposed on products imported from the United States, companies that obtain their supplies from there will be affected,” says Vaugeois. “This could mean you’ll need to look for new suppliers in other countries—or right here in Canada.”
You may also be at risk of losing some suppliers. If several companies stop buying goods from the U.S., some suppliers may decide that it’s not worth the effort to document where their components come from to serve a small proportion of their customers in Canada. Some suppliers may simply decide to stop selling their products overseas. Talking to your suppliers is critical to understanding their situation.
However, supplier diversification is not a magic solution. “Diversifying your supply chain doesn’t happen overnight,” says Biltchik. “Finding alternative suppliers can be long and complicated. The same is true for businesses that want to cross the border to manufacture products in the U.S. and avoid paying tariffs. It may be an option, but it takes time.”
Optimize your supply chain
Another solution is to focus on optimizing your supply chain to reduce costs and thus better absorb the tariffs.
“You need to analyze your costs throughout your value chain—cost of transportation, storage, handling, etc.,” says Vaugeois. “Then you have to identify your biggest expenses and see how you can reduce them, renegotiating contracts with your carriers and suppliers, for instance, or working together to review itineraries and routes, optimizing your production processes or adopting new technologies. In short, it’s the right time to review your logistics strategy.”
Leverage new technologies
Another solution is to look at technologies that can help you make your supply chains more resilient.
“Of course, if your company is still paper-based, now is the time to look at how technology can help you optimize your operations,” says Vaugeois. “For instance, technology can increase your agility and the visibility you have on your supply chain by providing you with better real-time data, facilitating inventory management and optimizing shipping. You could improve cash flow, but you would also get to increase customer satisfaction.”
It’s also important to think about ways to reduce your production costs, such as optimizing your processes and reducing waste.
“Anything that can help your company become more competitive will help you mitigate the impact of the tariffs,” says Vaugeois.
BDC is there to help you
BDC has always been there to help entrepreneurs in difficult times. The current situation is no different.
We are working with our partners at EDC, the Trade Commissioner Service, and other organizations across Canada to provide resources and support to business owners concerned about the impact of potential U.S. tariffs. We are monitoring the situation closely and continue to gather information to help your business.
Please don’t hesitate to contact us if you have any questions or if you think we can help you through this period of uncertainty.