If you’ve been in the industrial distribution industry for any significant amount of time, you’ve no doubt lived through what I like to call “the murmurs”. The cause of the murmurs has changed many times throughout the years — looming automation, sweeping digitization, economic downturn, the shift to e-commerce…
The murmurs always start with a threat to our business that emerges quickly and causes a widespread chatter followed by panic, followed by a mad rush to solve the equation first.
Well today, we find ourselves smack dab in the middle of one of the scariest murmurs our industry has faced in years: a global trade war highlighted by tariffs on imports of up to 25%.
Now, much like murmurs of the past which always seem like a ticking clock toward impending doom, I actually believe that global tariffs present a very interesting opportunity for a very small number of savvy distributors — those that understand how to use data to their advantage.
First, Let’s Know Where We Stand Today
It is no secret that a core focus of the Trump administration’s platform has been to reshape the U.S.’s global trade policies to focus on an “America First” agenda. President Trump set out early and openly to reshape a number of international relationships and trade agreements he deemed unfair, and made no bones about the fact that tariffs would be a central tactic to move the needle in the desired direction.
Over the course of the past two years, these global trade missions have taken many shapes and proposed regulations have shifted constantly. We’ve seen a restructuring of NAFTA that places greater penalties on aluminum, tariffs on steel imports from South America of 10–25%, and of course, a very public battle with China resulting in a 10% tariff that is set to rise to 25% on March 1 if no resolution is enacted.
The hard truth is that in this administration, the only thing we know is that we won’t know much until it happens. Even when tariffs or regulations are announced months in advance, we frankly can’t rely on them coming to fruition nor can we rest easy thinking we’ll have fair warning when a new tactic takes hold.
What we can do, however, is get smarter about how we tariff-proof our businesses, and that all starts with using data in smarter, more proactive ways.
Start Using Data to Inform Your Pricing Decisions
One recent business owner I worked with was trying to address the increased costs for her business from tariff hikes. After some deliberation, her strategy was to take all their current prices and increase them 12%. I asked her why 12% and not 12.5%?
She ran through some thoughts about covering the 10% and then putting the 2% toward new business needs…but still I asked, “why not .5% more?”
Sometimes 0.5% seems irrelevant but when you run a business of $45M in sales, that irrelevant number means $225K to your bottom line. That’s your kid’s college tuition, a new vacation home, or plenty more products for your inventory — but it’s also a perfect example of why data is so critical in decision making, if even over half a percent.
The beauty of getting smarter about your data is that those little half-percents will start to emerge all over your business. By analyzing trends in the data already going to waste in your current ERP system (such as the hundreds or thousands of line items listed in every product quote), you’ll quickly start to see things like:
- Pricing of core inventory not keeping pace with less important product lines
- Inefficiencies in resource management causing inflated prices elsewhere
- Opportunities to inch-up pricing across your entire portfolio
As everyone in the business scrambles to solve the very same problem — a singular global tariff increase — only so many winners will emerge. Knowing your competitors will also have to adjust their prices to continue seeing revenue, the smarter you can be about price-setting, the bigger the opportunity you have to steal market share.
By fixing pricing today, you can actually find margin increases that will allow you to inch up pricing in response to tariffs in the future without taking nearly as big a hit as your competitors who fail to first look inward.
Re-Evaluate Your Inventory and Accounts
Just like pricing, it is always interesting to me to see how many businesses are really just making educated guesses still when it comes to things like stocking inventory.
Like many businesses, you may have periodic inventory checks being done to make sure you are stocking properly, but in the two months (or more likely, six months) between those checks, you could be missing trends in your business that suggest there are big savings being missed.
Again, this is where a data analytics platform can help you track and evaluate your inventory constantly in real-time, and be presented with alerts when trends emerge or inefficiencies appear.
Likewise, customer categorization can be your very best friend when looking for those little edges where you can start to see real efficiencies emerge. One of the most common mistakes I see distributors making is misallocation of time and resources simply because they fail to properly categorize their accounts based on their true business impact.
By digging into the data, you’ll be able to set prices appropriately for VIP accounts, steady growth accounts, core business accounts, and accounts that are a net drain on your business.
Getting ahead of the future means optimizing each little micro-facet of your business now, and your data is the key to doing it easily at scale.
Rethink Your Supply Chain Now
Perhaps an even bigger weapon data presents for tariff-minded distributors is the opportunity to readjust supply chain operations to minimize price increases of in some cases avoid them at all.
Here are some quick tactics you can take:
- Evaluate Your Inventory —Know what you have, what you need and what you can spare. Consider things like overstocking today at 10% to avoid paying 25% later
- Diversify Your Suppliers — Start conversations with suppliers in unaffected nations, or find a second supplier to use as leverage for price decreases with your main supplier.
- Project and Prepare for Everything — Create detailed projections of what your business model and operations would look like given hypothetical changes of 10, 15, 25+% to know what you will need before you need it.
- Start Negotiations Early —The sooner you can start conversations with your partners, the more likely you will be to find some common ground that can save you money while maintaining standing relationships.
- Get Automated — Things like supplier sourcing and product pricing can actually be largely automated and save you tons of time and money. Don’t underestimate the value of automation just because it is new or foreign!
Think Forward, Act Now
In the end, everything you do to prepare for rising tariffs is a boon to your business, so be as proactive as you can. Take a hands-on approach with regulators by filing exclusions or communicating directly with customs officials, work with consultants to project your business model against multiple scenarios, and most of all just really take a look at what you can do better TODAY.
The only thing we know about this global trade war is that we won’t know much until we’re living it, so the winners will be those who focus on fixing what the CAN control. Don’t let the murmurs distract you from setting yourself up for success!
Bottom line: Fix your prices, find efficiencies, put your failsafes in place, and face down tariffs knowing you’ve put your business in the very best position to win.
About the Author
Nelson Valderrama is the CEO of Intuilize , which specializes in helping Mid-size distributors transform data into profits. Nelson has dedicated his career to helping businesses uncover hidden competitive advantages and unleash the power of data in the new Digital Economy. For more information contact him by email firstname.lastname@example.org or visit www.intuilize.com