On May 31, The White House confirmed numerous import tariffs, including those on steel and aluminum. This has many B2B manufacturers worried, as theses tariffs may present troubling implications for both their businesses and their customers.
In this post, we’ll look at the current state of affairs, what it means for B2B manufacturers, and how software vendors can help.
The White House has a list of import tariffs of up to 25% covering roughly 6,031 categories of items, a total of $50 billion in imports.
While these tariffs dotarget products that use US and other western intellectual property, the reason why many of them incorporate western patents is because they derive from western companies with China-based operations.
What’s more, sanctions are expected to “hit high-tech and other sophisticated products that US producers incorporate to add value to their output”, explains Global Trade Magazine:
US companies would be placed at a competitive disadvantage as a result of the tariffs, since competitors in Europe, Japan, and South Korea would be able to acquire those products and components at lower cost.
According to a report by the Peterson Institute for International Economics, Trump administration’s Section 301 tariffs target global supply chains, potentially damaging US businesses and their employees:
To the extent that the tariffs land directly on productive inputs, they raise the cost of manufacturing goods in the United States, push American firms offshore, and handicap US-based exporters selling in foreign markets. Competitors based in other countries will not face the same taxes on their production and inputs.
What It Means for B2B Manufacturers
While this means there may be serious implications for both the economy and employment, B2B manufacturers specifically are having to tackle some tough issues, including:
- How to hold the line on margin erosion
- The impact on per-unit costs
- How to effectively pass changes on
- Preparing customers for an across-the-board price increase
Rick Chappel, VP of Customer Success at Zilliant, warns how rising costs will affect manufacturers, “A steep rise in costs may exacerbate existing pricing issues for manufacturers, most of which lack an effective method for variable cost management.” He explains that for many companies that have standard costs locked in annually, there’s little leeway for unexpected cost hikes.
Moreover, many manufacturers have a slow, overly-simplistic response to cost changes. And when they lack the ability to “quickly, granularly, and effectively” update prices in response to these changes, they fail to capture the full value of their products.
According to a Zilliant analysis, the Global AI B2B Benchmark Report:
The aggregate impact of not addressing cost changes quickly and accurately ranges from 0.6 to 8.7 percent in lost profits. For a $300 million manufacturer, this equates to $1.8 million to $26.1 million in uncaptured annual profit.
While we may not know how much the White House’s new tariffs will impact raw material costs for manufacturers, we do know that businesses lacking a plan to tackle cost hikes will suffer.
How Software Vendors Can Help
So how can manufacturers deliver market-aligned prices that effectively mitigate cost without losing a significant amount of business?
Artificial Intelligence (AI) can help you make more accurate forecasts, meaning you won’t need to make manual calculations every time costs go up due to tariffs. That’s because AI-driven price optimization lets you apply “‘what-if’ scenarios to customer micro-segments to visualize how price changes will impact profit and revenue before the new prices are put in-market.”
When these AI-powered price optimization tools are paired with Configure-Price-Quote (CPQ) applications, manufacturers can not only better forecast and price their products, but they can also configure and quote quickly and accurately. Combined, these tools allow manufacturers to sell their products quickly, error-free, and at the optimal price.
So how can companies prepare? Luckily, established software vendors can help companies better respond to governmental actions that impact pricing by providing a cost-adjustment strategy powered by AI-driven price optimization.