Navigating supply chain and tariff challenges in the retail sector

BY Australian Retailers Association
30 August 2019

How local retailers can mitigate the financial burden of political and economic disruption by using digital networks.

With many of its trading partners increasing tariffs or levying new ones, Australia is finding its longstanding tradition of free trade tested as never before. Against this backdrop, retailers are becoming increasingly nimble in managing their supply chain to safeguard the continuity of raw materials and, to the extent possible, the stability of input costs. Meanwhile, online shopping has become a necessary offering for retailer success - so customers demand immediate fulfilment. To cope with the growing demand for rapid and convenient delivery worldwide, many local retailers have adopted complex supply chains extending far beyond Australian shores. Yet for online retailers in particular, this exposes them to additional costs imposed by tariffs in the countries to which they are delivering their goods.

In one of the most pronounced examples, the United States (US) imposed tariffs on thousands of imported goods from China, triggering immediate retaliation with taxes implemented against a similar amount of imports from the US. Although Australia is exempt from these tariffs, the tit-for-tat could have a harsh impact on local suppliers and retailers who count on exports, particularly to China, for a large share of their revenues.

These new tariffs loom large over the retail sector, increasing uncertainty around consumer and business confidence. Many retailers are vulnerable to the steep costs that tariffs impose, forcing them to relocate their production and renegotiate their relationships with existing suppliers. For many, this poses a significant problem given that they secure trading agreements months in advance of distribution, while others have multi-year contracts in place. Local retailers with global networks must assess their supply chains and develop strategies to ensure they can absorb the disruption.

Joining a digital procurement network is one way that retailers can mitigate the financial blow associated with tariffs. By extending transparency into the operations of trading partners, digital networks enable local retailers to anticipate bottlenecks or many other risks to the supply chain - and remedy them long before they pose a problem. Equipped with Artificial Intelligence (AI) technologies, cloud-based networks can help businesses to arrive at the most efficient supply chain possible, instantaneously. These networks propose alternate sources available to retailers for manufacturing their goods. Moreover, these alternate sources, perhaps previously unknown to a retailer, can evolve into preferred partners. In other words, the jolt of a trade war can inadvertently force a retailer to rethink its supply chain and, in the process, discover new suppliers that meet its needs even better than the preceding firms did.

Unless averted soon, a trade war between China and the US could incur harmful outcomes for local retailers and suppliers in Australia. After all, these are two of Australia’s largest trading partners. To ensure that supply chains remain flexible to shifting trade policies, local retailers are wise to rely on a cloud-based procurement network for optimal outcomes whether in times of high trade barriers, low ones, or none at all.

Henrik Smedberg is the regional vice president of SAP Ariba ANZ, the world’s largest business network, linking together buyers and suppliers from 3.4 million companies in 190 countries. Learn more at www.ariba.com/about

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ABOUT THE AUTHOR

Australian Retailers Association

Founded in 1903, the Australian Retailers Association (ARA) is Australia’s largest retail association representing Australia’s $310 billion sector, which employs more than 1.2 million people. As the retail industry’s peak representative body, the ARA works to ensure retail success by informing, protecting, advocating, educating and saving money for its 7,500 independent and national retail members throughout Australia. For more information, visit www.retail.org.au or call 1300 368 041.

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