Do you feel like an insignificant cog in the wheel of your business and the economy? It’s hard not to for those of us working in manufacturing that uses technology and enables transportation. I am a member of MEMA, the Motor & Equipment Manufacturers Association (www.mema.org). With 900 members related to car, truck, and bus production and aftermarket parts, it represents a huge portion of manufacturing and its members are significantly impacted by the tariffs. The organization has done much to work with the administration and Congress to understand, influence, and implement the tariffs. I would not like to be a CFO in charge of determining the tariff from midnight April 9 to 10AM with the pace of changes.
Yet, that same cog that can seem insignificant, is essential to the economy. Whether it is transportation parts, the computers that are driving the Software Defined Vehicle, or the many services that rely on sensors and critical minerals, much of the economy and employment is somehow related to manufacturing for the transportation industry. One phrase we have is, “Trucking Brings It.” If we include all the other wheeled and tracked vehicles, including planes that take off and land with wheels, a better phrase might be, “Moving the World.” The wheel is among the most important inventions EVER.
There is something that connects feeling like an insignificant cog in a wheel, feeling that the cog is essential to the function of the machine and the economy, and tariffs. If you think about your business, the Profit/Loss or Income Statement has three important lines at the top.
Revenue
COGs
Gross Margin
The Cost of Goods or Cost of Goods Sold determines your gross margin and is a huge factor in those bottom lines of EBITDA and net profit. How in the world, can you calculate your current COGs and forecast the future COGs in this environment? Yet, you must do just that. Here are 7 things you should be doing all the time, but especially now.
- Know your sources for every part. Small fasteners of special materials are a factor as they are only available from other countries.
- Have more than one source or at least know another source
- Know the cost for FOB, Landed, and AYD (At your Dock/Door)
- Team purchasing, engineering, finance, and legal to review parts sourcing
- Use Supply Chain Management tools beyond your internal Enterprise Resource Planning (ERP) software
- Know the supplier of your supplier. Just because your distributor is local, does not mean that your part is not subject to multiple layers of stacked tariffs. You are already paying a premium to buy in small quantities with local stock. That distributor may well be poised to raise prices.
- Use scenario planning to look at several options you will need to consider immediately, in the mid-term, and long term.
TARIFFS — Tax and Reduced Income Finding Feasible Solutions
