Planning for the Possibility of Rapidly Changing Tariffs
Hello again,
This helpful post was written by John Miller, President of Passport Software, about handling frequently changing prices in PBS™. We hope you find it useful.
I attended a webinar sponsored by the CSCMP, Council of Supply Chain Management Professionals recently and the subject of the day was tariffs. Tom Cook has spent forty years consulting with companies on international trade and was the presenter. He is well-connected with the Department of Commerce and demonstrated impressive and thorough command of the issues.
In a nutshell, he said that over 100 nations have already submitted proposals for trade agreements, many with zero tariffs both ways. He feels that during May these will be finalized and the re-set of our global trade system, with the notable exception of China, will be wrapped up and that the results will benefit the U.S.
But he admits that it certainly has been a wild ride. He also said that he believes that China will be settled too, but is less clear on what that will look like. Big webinar takeaway – be patient and don’t overreact at this time.
PBS™ Distribution
I am no expert on international trade, but I can suggest options that your customers already have coded into PBS to deal with frequently changing prices. In our PBS Distribution suite of modules, if using price codes in Inventory Control to set prices based on cost markup or Price 1 discounts, then the basic review of cost changes when you purchase or receive updated price sheets from suppliers is straightforward.
However, if you manually price on-the-fly or use the contract price file to set specific prices on specific items for specific customers, then you will need to watch your margins closely. In addition, the PBS Distribution Suite Inventory Control offers mass change utilities to assist changes from a vendor, allowing you to manage overall costs.
PBS™ Manufacturing
In the PBS Manufacturing Suite, Inventory Management and Product Definition make it easy to report the impact of component cost changes across all the products that have that component in the bill of material. A simple report, Costed Summarized Bills, can provide feedback on your latest average costs (if using average costing) on your current overall cost of manufactured goods.
You can also compare it to your last cost, allowing you to see the impact of your most recent purchases on your overall cost of manufactured goods. These also provide easy-to-use cost roll up tools. This allows you to quickly and easily recalculate the costs of your manufactured items quickly and easily.
Customer Order Processing allows quickly updating both list prices and special pricing for all items. Increase or decrease overall pricing based on items either by applying a percentage increase/decrease or by recalculating these based on a simple price to cost ratio. If building your tariffs into the overall costs of items, easily escalate prices accordingly.
Adding a Line Item
A common theme is, most expect this to be a temporary situation, and many customers don’t want to impact their pricing. They would prefer to show the tariffs as a line-item charge or simply as a separate charge on the invoice. There are ways to achieve this, and the technique would be similar in both PBS Distribution and PBS Manufacturing.
First, simply create a miscellaneous item, set it up as a non-inventory item, and use this to add a charge in the form of a line item on your orders. The price for this can be set at the time of sale. Though it requires some computation to determine, it is an easy way to display the tariff charge as a separate charge with a clear description of what it encompasses.
Another technique some companies are considering is using the Misc. Charges field on the totals screen of either the PBS Distribution or PBS Manufacturing Order Entry tools. This requires manual calculation of what the charge should be, but it allows one to offset the charge as just that, a separate charge, rather than reflect it in the price itself.
The one caveat with this method is it assumes the Misc. Charges field is not being used for other charges already. If this technique is used, we recommend you consider changing the name of the field on the totals section of the form to reflect this as a tariff charge, thus clearly defined.
Why do many wish to set this as a charge rather than as a price increase? This is expected to be somewhat temporary. Breaking this out as its own, clearly defined line item or overall charge helps to reflect that. It should also help cut down on phone calls about price increases and make it clearer what the customer is paying for.
Passport Software
Passport Software is poised to make changes to both PBS Distribution and PBS Manufacturing as needed, should these become a more permanent item. We are working on design approaches in the event this becomes necessary.
As always, we want to ensure that you can continue doing business “as usual” and we can support you in doing so. In the meantime, Passport will continue to monitor the impact of tariffs and look forward to helping our accounting deal with them appropriately.
John Miller, President Passport Software, Inc.
To learn more about PBS Manufacturing or PBS Distribution call 800-969-7900. Or contact us – we are here to help.