By Andy Beth Miller
Christian Schroeter is a Director of Procurement for Siemens, and as such, he has a wealth of experience and professional prowess when it comes to all things procurement. So, when he sat down with me to talk through the impact that the U.S. Trade War has had on the procurement industry, I listened…Intently. As we got into the interview, it was abundantly clear right off the bat that Schroeter knows his stuff. Most importantly, he knows how, when, and where to source his products, even in the midst of unpredictable trade wars that change the dynamics of procurement daily.
Schroeter graciously took time from his busy schedule to not only discuss how the U.S. Trade War has affected the procurement field, but he even spent his valuable time sharing some simple and proactive tips that we can use to help us navigate the constant ebb and flow—and sometimes tidal wave-like turmoil and upheaval—caused by it.
It is clear to everyone that the trade war that is taking place currently between the U.S. and its largest trading partners China, Mexico, Canada and the EU has spawned a surge of uncertainty amid the global markets. This directly impacts the ability of international procurement especially to be able to operate efficiently, and to continue to profit.
“Any organization in the United States with an international supply chain today struggles with the unpredictable and erratic trade war situation we have [been faced with recently],” says Schroeter, who does not mince words as he gets right to the crux of the issue in his initial statement. Schroeter explains this by pointing out simply that it is inevitable that much of a company’s sourcing will rely on International relations, such as those stemming from countries like Canada, Mexico, and Asia, which, of course, were the ones impacted the most by the recent tariffs. “That has definitely been one of the largest challenges that we have faced in the last two years,” Schroeter admits, alluding to the obvious trickle-down effect that these tariffs have had on our own U.S. organizations.
But, Schroeter is quick to point out that these effects are not just limited to cost impacts, “[It was difficult] not just because of the cost impact, but primarily, because of the unpredictably of these announcements coming from the administration.” According to Schroeter, this unpredictability may not directly affect the demand and consumer spending in a thriving economy, but it does indeed directly affect three things: “where you source, how sustainably you source, and investment decisions in areas such as equipment and tooling.”
Schroeter then gives a prime example of his own daily behaviors that reveal just how changeable the current status of procurement is as he admits, “I wake up and check my Twitter first thing every day, just to see if there is a new problem or new changes on the horizon.” He quips in jest and laughs lightheartedly, but the seriousness of his words translates loud and clear: In this age of constant change and unpredictability, one has to be always vigilant and remain up-to-date on the latest trends and changes. Not only is being alert a vital necessity, but according to Schroeter, being ready to respond and react is even more integral to surviving, and thriving, in today’s market.
In fact, adaptability is the term that this professional prefers to promote as being a huge asset in the ever-changing procurement industry. Schroeter then provides us with a few expert tips on how exactly this adaptability can flesh itself out in the real procurement world’s sometimes rough waters.
”If you wait to change sourcing after the tariffs, you are automatically incurring costs, losing negotiating power, and so much more.
He first urges us to focus on multi-sourcing, “Depending on where your starting point is, if you have any significant exposure, such as products or services that you buy (where you have only a single supplier that is outside of the country that may be, or already is, in a country that has been affected by the tariffs), you really want to strategically go ahead and find a second source, ideally from a different country or region.”
He then explains the need for this multi-sourcing by pointing to the inevitable ramifications that will result if you do not, “If you wait to change sourcing after the tariffs, you are automatically incurring costs, losing negotiating power, and so much more.” In essence, Schroeter is warning us with that age-old adage, don’t go putting your eggs in one basket, because in the end, you just might end up with egg on your face.
Make Your Supplier Contracts Flexible
As domestic costs often rise to match tariff-inflated import costs, especially in regards to products like steel, aluminum, etc., Schroeter advises a change in contracts, making them more flexible with regard to fluctuating tariff costs, similar to index based fluctuation formulas. This can also help when it comes to limiting uncertainty in investment, where instead of having the supplier cover the CapEx (capital expenditure), a company can decide to pay for and own tools at suppliers, thus rendering them able to move them quicker when trade scenarios change.
Know Your Bottom Line, Your Competition, and Your Product
Schroeter follows up his great advice thus far with one word of caution, warning us to “be careful of suppliers with bad intentions or limited knowledge” and to “know the rules of U.S. Customs and Border Protection, especially the percentage value thresholds for countries of origin.” He then gives an example of how some suppliers may only move final assembly, packaging, or testing to a place like Taiwan, then claim that these supplies had non-China origins. As importer of record, any U.S. company would be liable for significant fines by the U.S. Government if found to be not in compliance.
On the importance of benchmarking the competition, Schroeter explains that only when the majority of companies in your field experience a similar cost impact from tariffs due to comparable supply chains, will you be able to pass some or all of these added costs on to the customers. In this case, close alignment with your sales force and clear communication is the key to success.
Schroeter leaves us with a proactive call to action as he not only emphasizes the importance of being vigilant and ready to react and adapt to changes, but he takes it a step further and challenges us to even go as far as to begin anticipating some of these shifts. For example, develop ways to evaluate mitigations, risks, and opportunities, such as putting in place a warning system based on digitally matching internal material classification systems to HTS (Harmonized Tariff Schedule) codes in order to speed up analysis when said conditions change.
According to Schroeter, in a nutshell, we must “multi-source, benchmark [our] competition, have contract flexibility, develop look-ahead capability, and focus on sustainable cost-out.” If we can simply manage that, everything will go from being bananas, to being cherry.