Five Lessons from Business Simulation Wobblers on Tariffs

In anticipation of the Presidential Memorandum on Tariffs, many of our Advantexe clients have been focused on understanding the tariffs' impacts on their business from a business acumen learning perspective.

Over the past few weeks, we have launched a “tariff wobbler” portfolio into our business simulations so leaders can prepare and learn what to do in the “real world.” A tariff wobbler is a curveball we throw at participants to see how they react. These tariff wobblers include raw material shortages, escalating COGS, lower-quality vendor options, and opportunities to expand domestic manufacturing capabilities.

The workshops have been interesting, and although we’ve only delivered the wobblers to a small number of industries (semiconductors, pharmaceuticals, and automotive), we have some rich learnings to share.

Here is a list of five key learnings that leaders are going to put into action as a result of our workshops:

Overwhelmingly, every leadership team we conducted a workshop for is prioritizing, reviewing, and adjusting their pricing strategies. Basically, they do not want to “eat” the cost of the tariffs, so they are passing them on to their customers. Here are a few of the key actions they are taking:

• “Pass tariffs on to customers. If they are strategic accounts, we can consider sharing some of the costs, but only a few percentage points.”
• “Aggressively renegotiate existing contracts with suppliers to reduce costs. This is a must; there are no other options.”
• “Look to see if there are any other value-added services that we can add to our relationships that don’t have a lot of cost and can help us to maintain competitiveness.”

We’ve had some legal and other operational people in the workshops, and it was interesting to observe how well-versed they were in tactical matters, such as following all the guidelines and classifications. Preparation and ensuring you have the right lawyers and accountants is a big deal. There were some great insights here including:

• Ensuring your organization uses proper tariff classifications to avoid overpayments or penalties.
• Look for and leverage trade agreements and tariff exemptions for which your company may be eligible.
• Make sure all leaders stay updated and trained on regulatory changes to remain compliant and avoid making mistakes.

3) Conduct an in-depth Impact on Supply Chain Impact Analysis

The well-prepared organizations have been doing this for a while. They looked at their supply chain, identified the most impacted parts, and developed contingency plans. It’s not too late to:

• Identify the most affected goods and materials.
• Evaluate cost increases and potential disruptions.
• Explore alternative suppliers or countries with lower tariff burdens.

4) Strengthen Supply Chain Resilience

Having a weak supply chain has the potential to implode an organization. A weak supply chain cannot absorb change and always fights fires and reacts instead of proactively and aggressively planning. A few key tips:

• Diversify sourcing to reduce reliance on high-tariff regions.
• Consider optimizing and expanding your manufacturing footprint where feasible.
• Establish stronger relationships with logistics providers for flexibility.

5) Engage in Advocacy and Lobbying Efforts

The final learning takes a long time and has significant cash flow implications. Great patience and a willingness to roll up their sleeves and engage in politics are also required; not many organizations or leaders are prepared for that. Here are a few of the more straightforward ideas that were discussed:

• Participate in industry groups to advocate for favorable trade policies.
• Work with legal and trade advisors to develop a long-term strategy.
• Monitor geopolitical developments and adjust business plans accordingly.

In summary, our volatile times have just gotten more volatile. These tariffs could last for the next four years or be gone tomorrow as the wind blows in a different direction. No matter what happens, it is always a great idea to use business acumen skills to prepare, assess, and have action plans to mitigate risk and protect the core of the business.