Armanino: How Manufacturers Can Absorb Costs Amid Trade War

A fierce trade dispute is unfolding between the United States and China, delivering heavy blows on both sides.

In the midst of this economic conflict, manufacturers and distributors are grappling with the growing strain of tariffs that are eroding profit margins and disrupting long-established supply chains.

It is clear that navigating the consequences of these economic measures demands a strategic approach spanning operations, supply chain management and long-term planning.

Tariffs send shockwaves through global manufacturing

The imposition of trade tariffs has introduced considerable obstacles for manufacturers across the globe, prompting a reassessment of key business decisions such as production sites and material procurement strategies. These additional financial burdens arrive at a time when many organisations are already contending with broader economic pressures.

Colin Dowd, Industry Strategy Senior Manager at Armanino, highlights the need for heightened efficiency in the face of these challenges: “To offset rising costs, manufacturers and distributors should prioritise lean practices by eliminating non-value-adding activities and enhancing overall 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

In the face of rising tariffs, manufacturers must seek opportunities to reduce costs without sacrificing quality or performance. Taking a strategic approach to budget management is key.

"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."

Though often requiring upfront investment, technology can offer substantial savings over time. Energy-efficient systems and modern equipment can help cut ongoing costs while boosting productivity.

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 strategy also plays a vital role in enhancing efficiency. Aligning team structures and setting clear expectations can lead to better performance and more streamlined operations.

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

Adapting supply chains and embracing data-led strategy

The introduction of tariffs has compelled many businesses to rethink their supply chain models, with diversification now seen as vital for long-term 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."

Moreover, inventory management must also evolve to meet the challenges posed by shifting tariff policies.

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

Cost optimisation opportunities can also be found through regular review of vendor contracts. Colin advises companies to "verify that terms are being met while also rediscovering areas where potential savings may exist".

Data-driven decision making

Successfully navigating the effects of tariffs requires a data-centric approach. Increasingly, manufacturers are turning to analytics to guide strategic choices around sourcing, production and market positioning.

Colin emphasises the importance of using forecasting tools in this environment: "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 also become a crucial tool for managing uncertainty.

"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.

Building long-term resilience through innovation & culture

While short-term tactics are necessary, manufacturers must also look ahead, developing long-term strategies to remain competitive in a tariff-affected global market.

"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."

Collaboration offers another route to resilience and efficiency. Colin explains: "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."

An agile organisational culture is equally vital. Adapting swiftly to market change requires more than structural changes — it requires the right mindset.

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".

Technology investment also remains central to long-term strategy. Beyond automation for efficiency, it enables businesses to optimise their workforce and enhance overall performance.

"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 global trade dynamics continue to evolve, manufacturers that commit to forward-thinking strategies spanning cost control, supply chain agility, data insight and innovation will be best equipped to maintain their competitive edge in a complex economic landscape.

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