Tariffs have most worried about inflated prices. Especially a class of CEOs leading established companies.
We just got over supply chains snarls from COVID. Now the price to import components could have a hefty tax slapped on it.
The typical reaction is cost control through efficiency. But you can’t cut your way to sustainable growth.
There is another way.
It is also possible to grow your business during this time. Something innovation could do well at. And, as a bonus, maintain your cost structure.
So what separates these scenarios?
What are CEOs saying?
Growing up in the working world, I was raised on the glory of cost savings. Managers awed over the millions of dollars saved each year because airlines cut tomatoes from their salads.
Now, at least two generations of offshoring drove costs to the bottom. Without a corresponding increase in efficiency or production back home.
It didn’t leave us with a sustainable solution.
What the tariffs are attacking is these companies’ operations under those assumptions. Playing a zero-sum game has left no room to run.
These takes from a series of interviews at Yahoo! Finance stuck out for me:
- Otis (elevators) is vulnerable to parts shortages due to Chinese companies that supply at scale. They are looking to reshore some of these suppliers.
- P&G so optimized their Metamucil suppliers that raw material only comes from a small region of India.
- PepsiCo sources their concentrates from Ireland. Stuff that’s just sweetener and food dye.
At the end of the day, these are just quick defensive measures. Ones that won’t grow a company.
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Why did we leave out innovation?
But this isn’t a zero sum game. Unless you make it that way.
There was huge promise in the 2010s that innovation would reignite American competitiveness. That and lower tax rates opened avenues for frustrated employees to realize the dreams. Managers suppressing wild ideas to further their own careers couldn’t kill it any more.
We got every conceivable new service that squeezed more use out of hard assets like houses and transportation. We expanded delivery services for any product you could want at any location.
I mean, STREAMING rather than cable TV and a DVD collection.
And with that came maker spaces. 3D printing took off with encouragement from business incubators and academia alike. Hackathons showed exactly what challenges genius could overcome with only a goal, a printer, and a compressed timeline.
At that time, those companies resolved problems for their customers as well as their internal structure.
Something that’s coming back around again.
What else could work?
Which highlighted a few things missing from those interviews.
“We’re partnering with a domestic sensors supplier”
It is an option to invest in the production of a local supplier with an agreement to provide goods at a discount. If you’re not familiar with elevator maintenance, the thing that goes wrong the most are the positioning sensors. Manufacturers for those do exist in the Southeastern US.
“We’re asking independent 3D printers to send us their proposals.”
If you can’t make it at scale, make what you need. Even better if you can make it closer to where you need it.
To help with that, there was explosion of business incubators across the US with strong ties to makers. Advances in 3D printing also allow quality control on a much tighter level while building the part vs. an acceptable number of failures per parts made.
“We’re facing high substitutions and shrinking markets.”
Sorry, but I had to take a shot at Metamucil. Especially when supermarkets have innovated their fresh sections to better compete with the lack of fiber from fast food chains. And it’s more satisfying to bite into a juicy bell pepper than drink colored, flavored fiber substitute.
Efficiency or Innovation?
While we have a reprieve from tariff threats until August, innovating the supply chain will work in either scenario.
If you ignore it and stop at clamping down on your expenses, you may save money in the short run. But it also comes at the risk of not having control over your costs. Which is what caused the tariff uproar in the first place.
And if you have an opportunity to come out the other end with a better top and bottom line, why not take that instead?
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Promethian Impulse, LLC 
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