Finance Case Study
Tariffs began back in 2017 with section 232/301 tariffs sanctioned on China during Trump's first presidency. Section 232 targeted steel-raw material (hot rolled/cold rolled/aluminum) and Section 301 focused on purchased components (sub-assemblies & purchased FGs). Our client focused on private label automotive aftermarket parts that had heavy purchases of both raw material steel and steel alloys, as well as purchased bulk finished goods.
Problem Statement:
Our purpose for analysis was to quantify tariff exposure based on the current and historical purchases to develop a plan for recovery/mitigation.
Our analysis of the clients historical and forecasted volumes revealed a $14M tariff exposure. How did we arrive at that conclusion? We broke down the problem to the base data source by executing on the points below:
Evaluated current engineering BOMs from the ERP system (Where Used Report)
Isolated all components, purchased FGs, and raw material SKUs that would be affected by the tariff
Calculated the tariff burden based on HTS code & COO:
Created a custom tariff cost set
Cost sets were used to determine recovery pricing target by customer – developed pricing sheets showing usage & unit cost increases by part to make the sales team prepared for any questions that may come up from the customer
Results:
$11M mitigated through pricing actions and other margin savings measures
This included:
Worked with purchasing team to find alternate sources for raw materials/FGs to mitigate tariff impacts – based on COO
Customer piece price increase – list & jobber pricing
Raw material auto escalator – tied to AMM index
Lump sum payment recovery
Alternate country of origin for purchased FGs
Raw material contract negotiations (based on tonnage) were also conducted to hedge steel pricing in order to mitigate volatility in the steel market that took several months to stabilize
Conclusion:
With collaboration from the cross-functional team, the client was able to rollout pricing increases with clarity to the client on the reasons for the change and were able to implement additional margin saving measures to hold EBITDA and hold stable cashflows.
