In the context of global supply chains, politically fueled tariff wars and a widespread ebb in the growth of major economies are causing major upheavals to logistics operations. Caught in the crossfire, businesses often struggle with comprehending macroeconomic developments, let alone forecasting and preparing for a volatile future.
Navigating the regulatory environment is critical, as companies that source products globally can end up spending 35% of the product’s cost just on regulatory fees across countries. These fees can be brought down by intelligent sourcing methods, evaluating procurement and distribution strategies, and minimizing the impact of constantly varying tariff and duty rates – without having the rug pulled from beneath their feet.
Enterprise supply chain solutions provider LLamasoft has recently introduced taxes and duties analytics capabilities to its supply chain platform, which it hopes will help companies weather immediate and long-term effects of fluctuating taxes and duties, as well as maximize profit margins.
“Our supply chain platform allows companies to build a digital twin of their supply chain. This includes manufacturing plants, warehouses, import locations and transportation lanes, which companies use on a day-to-day basis. Llamasoft helps organizations represent their physical supply chain virtually within the digital world,” said Matt Tichon, the vice president of industry strategy at LLamasoft.
Tichon explained that LLamasoft’s analytics solution for taxes and duties is timely as it assists businesses to accurately zero in on product movement across the entire flow path in the supply chain.
As a general rule of thumb, it can be understood that the longer and more complicated the sourcing and distribution patterns, the harder it gets to manually comprehend an effective strategy that is resilient to disruptions of taxes and duties. For smaller companies that work on moving products between two countries, the regulatory framework is relatively easy to navigate, as it comes with a point-to-point cost structure.
However, multinational companies that dip into several different markets quickly realize the need for analytics solutions to bolster their operational strategies. For instance, a company can source its raw materials from a country like Thailand, then move to another country for manufacturing, and finally sell the finished goods in the European and North American markets. Optimization of strategic decisions is vital, as botched attempts could amount to serious implications across the extended supply chain.
“Now, within the application, our customers can see their entire cost flow path from origin to the final destination and then include them in their solver applications. With this, they can test out numerous different scenarios virtually, as the math behind the scenes shows them different global sourcing options,” said Tichon.
This helps companies to get a realistic picture of the costs incurred, allowing them to predict the financial impact of the decisions they would want to make, before they make them. Using analytics, companies can create a risk tolerance playbook that gives them concrete strategies for making decisions when there is a change in tariffs. So when there is an increase in taxes for raw materials from 15% to 20%, companies can depend on their playbook to decide if they want to continue with their existing sourcing strategy or if they needed to look elsewhere.
“A lot of companies make their decisions in a siloed environment. Spreading awareness on the existence of analytics capability is key, as organizations can now tap into a tool that’s off the shelf, proven in the marketplace, and can help with the uncertain regulatory environment prevailing right now,” said Tichon.