By Scott Sinning – Distribution Strategy Group – February 2025
Tariffs are in the news, and distributors are bracing for cost increases to ripple through the supply chain. While this is a complex and evolving issue, distributors can take proactive steps now to protect their profits.
Here are five ways to do it:
1. Strengthen supplier and customer communication.
Given the complexity of tariff policy, a good source of information is your strategic suppliers. They are doing the work to follow tariff announcements and calculate how to pass tariff costs to their channel partners. That will likely lead to cost-change notices that require fast action by distributors to implement.
Your customers, meanwhile, are also watching tariff news and may already be asking about expected cost impacts. Transparency and trust are essential.
Action Steps:
- Engage suppliers to understand upcoming cost increases: What, when and how much?
- Clarify their pricing structures — some suppliers may use line-item surcharges instead of product price increases, which could complicate ERP costing, create cost-plus pricing miscalculation and cause accounts payable mismatches for supplier invoices.
- Estimate your exposure: How much of your total sales come from tariffed imports?
2. Streamline your cost-change process.
The amount of work required for the supplier cost-change process is often underappreciated, yet it is crucial in managing margin impact. Speed and accuracy are essential, but some distributors still rely on manual processes that delay updates. Every delay in updating your ERP system means selling at old prices while paying higher costs — an instant profit leak.
Action Steps:
- Make sure your price and cost teams are on top of this and give them extra support.