Mitigating the Impact of Tariffs – Your Questions Answered

Everyone in sourcing, procurement, and manufacturing has questions about tariffs. Not only will they impact my bottom line, but how do I know which of my products are impacted? And how do I make the right decisions about my supply chain with the minimum amount of disruption and the best chance of resilience in the future?

Today, two experts will discuss how they obtain these insights using aPriori. Originally recorded as a live webinar, this presentation walks through how to use aProri to see the impact of tariffs on your bottom line, make trade-offs between sourcing strategies, and analyze your entire product profile for hidden cost drivers, manufacturability challenges, and speed to market.

At the end of the presentation, live audience members will raise their questions and get answers.

If you want to see the slides that accompany this presentation, you can watch the webinar Mitigating the Impact of Tariffs.

Here’s the full conversation on Mitigating the Impact of Tariffs with aPriori.

Using aPriori to Analyze Tariff Impacts in Real Time

April Guenet: Hello, welcome and thank you for joining today’s webinar on mitigating tariff implications using cost and risk strategies from aPriori. My name is April Guenet. I am a product marketing manager here at aPriori Technologies and I’m joined by my colleague Marie Magro, a senior consultant here at aPriori Technologies. So in this session we will go through an example of how you can go about making decisions around tariffs using the data generated through aPriori. Some of the things that we’ll go through will help you to understand how tariffs can impact your business and bottom line in real time. We’ll also show you how you can make smarter trade off decisions by aligning your sourcing strategies with your business goals and utilizing the data rich product insights generated through aPriori. Then we’ll show you how you can prioritize how you respond, taking immediate action where it matters most and also building up long term strategies for resilience as well as analyzing your product portfolio at a high level while also diving into cost drivers, manufacturability challenges and carbon impact to help improve decision making negotiations and speed to market as well as speed to resiliency.

Why use aPriori to simulate the cost of tariffs in real time?

• Align sourcing strategy with cost and risk data.
• Make data-informed decisions quickly in response to trade changes.
• Fast Action on Tariff Disruption Is Critical for Procurement Teams

April Guenet: So tariff and trade disruption is not something new, but it is the hot topic of the hour, especially with the new US Administration. As you’ve seen on the news, tariffs can happen quickly, within days or even hours, and retaliation can happen just as quick. So being able to act fast is essential.

And we find that having a solid foundation of understanding where your products are located and the cost around them enables you to understand where that risk is coming from and help you pivot a little bit faster. There’s also this demand for a best cost country or a best cost region. And while this is a high demand, it also makes suppliers maybe more selective in the work that they’re willing to take on and it also adds to their capacity constraints. Because of this, there’s a lot more demand and there might be prices that will increase in these current best cost countries. So again, acting quickly and being able to have the data behind it to make those decisions, to act fast is going to be really crucial. And as you’re familiar, you know, products are more complex, but so is it the supply chain. So understanding where your supply chains are, being able to rationalize your supply chain when applicable, and being able to make those decisions rather quickly is going to be imperative during this part to launch world class competitive products. So I’m going to pass it over to Marie who’s going to take it from here and she’s going to go through an example of how companies are leveraging tariffs today and then how aPriori is utilizing that, our methodology to get through it. Take it away.

Evaluating Common Tariff Mitigation Levers

Marie Magro: Perfect. Thanks April. Hi everybody. So for some of the common levers to manage the tariff implications, as we evaluate the different options available to offset or reduce the impact of these tariffs, There are many common places to just start from a supply chain standpoint. You can evaluate your inventory to bring in sooner from the potentially impacted countries. This would allow for time and consistency in your costs while trying to make your decisions. The common levers that you have to understand here would be the cost and availability ability to make this happen. As April alluded, capacity is also at an all time high right now in terms of securing it.

Common strategies to reduce tariff impact:

1. Pull ahead inventory from impacted regions.
2. Assess internal capacity for production shifts.
3. Re-evaluate manufacturing locations and routing.
4. Use free trade agreements and assembly location strategies.

Marie Magro: So do you have the cash flow and is your supply chain ready and willing to execute in the time that you need in order for this to be successful is one of the things to consider. If there is available capacity, internal capacity, or the potential to expand some of your in house footprint, is the investment that you’re making going to be offset by avoiding the tariff costs and maintaining your supply chain supply chain continuity. Similarly, is there a better location for your spend than your current location? Or if we’re talking about a full product, should we review the origin for each component and ensure that that piece is in the right location? If there are already multiple manufacturing and assembly locations, one of the things that we’ve seen is just ensuring the correct routings for each end user location. This can simplify the workload by eliminating some of the resources to claim duty drawbacks and also minimize your logistics cost.

Another option that can be considered, albeit with similar geopolitical risk as some of the others that we’ve talked about, assess the assembly and manufacturing options for each specific operation dependent on free trade agreements that exist today. The question at the end of all of these is what rolls up? How is this going to impact my overall product cost and my margin? So there we go. The first step to understanding how you may want to tackle this issue is evaluating which products and part numbers could be impacted. We can easily target this data that already exists within aPriori, as all costing exercises require a location of manufacturer, so this is intrinsic to our analytics tool that already exists. If your data is not yet in aPriori, this can be done by looking at your spend suppliers or the country of origin declarations to identify the right data set that you want to model using the software and where you want to prioritize that effort. We once that data set exists, we can use many methods to simulate the corresponding cost for that part in any potential region of manufacturing.

How to Identify At-Risk Products and Parts Using aPriori

Marie Magro: Another piece of our analytics includes reviewing how much material is consumed and how many machine and man hours are required to build your product. Depending on the type of trade agreements that are put in place, we can again focus those efforts to make sure that we’re looking at the right parts, especially if there’s a specific material that’s being impacted or in a specific region. Other high risk that we also see is that you may have one specific part that requires two full machines to produce everything that you need within a year. And you also need to consider the amount of operators required to operate that machine because labor is also a big consideration that we’re seeing right now. As many of us have learned in the recent supply chain disruption during COVID this type of information is typically not readily available unless the parts have or are being made in house or you have a really trustworthy and transparent supply chain partner that answers your inquiries on priority. Again, speed to questions and speed to decision is really important here because you’re not typically the only customer for that these guys are working with.

Being able to see this data without inundating your supply chain has an immediate impact in your ability to be responsive and start your mitigation strategy. By running the prioritized components in alternative regions, you can also quickly understand the impact of a tariff increase or region change on each part number. The chart that we’re showing below is an example of giving both a dollar estimate and a delta change in each of your product cost and a visual to see the outliers that should be initiated on priority. Again, speed to this knowledge is key as your competitors and others in most industries are also looking for the best solution. To be the first to make a decision can be a market differentiator if you are able to better maintain your product cost. The side by side simulations are also really helpful for other types of mitigation. What is the cost impact of this DFM issue? If I can consider an alternative material, does it bring the savings that I need to cover the ROI of a qualification? Because aPriori is using consistent calculations along with your assumptions, we find these quickly developed deltas allow for considerations to be turned into action where necessary.

Steps for targeting tariff-sensitive components:

1. Analyze material consumption and labor hours.
2. Evaluate high-risk parts based on machine/operator load.
3. Prioritize transparency with suppliers for real-time data access.
4. Simulating Regional Tariff Costs to Drive Supply Chain Decisions.

Marie Magro: So now we’ll get into kind of the example that we’ll call the e-scooter here. Because at the end of all this we want to understand what the financial impact is that the tariff will have for production today. How do we maintain production for the demand that we have while reducing our cost? And how do we maintain margins without increasing pricing to our customer? In this example that we’re going to be talking about, the forecasted growth is at 15% compounding annual growth rate. Exploring production options closer to home seems like a good opportunity. But is that cost to produce closer to home really going to give us the return that we’re looking for? Or is there another country that will offer a better outcome? The logistics costs are also increasing. So with that in CBAM, maybe we need to consider near shoring manufacturing for some of the components that go into this. The customer’s willingness to pay at today’s rate is already high. So we also need to find a way to limit the increase on price as much as possible to preserve our market share as a commodity manager for this product. How can we use aPriori to help answer these questions? So let’s walk through some examples for how this can play out.

So in today’s situation, just to kind of ground us all, we’re going to say the e-scooter is being sold for $267 with the cost of making the part at 227 current margin is 15%. We want to maintain or grow that margin if we can. Last year we had successful growth and we’re forecasted to increase sales by another 15%. We currently have global manufacturing footprint and we produce these components in the USA, India, Thailand, China and Mexico. With the final assembly happening in the US however and again these numbers can change on the daily as we’re seeing with the what we’ll consider the tariff imposed of the imports coming from China at an additional 10% and Mexico at 25%. We will evaluate the tariff that the impact that this tariff has on our margins and our projected forecast, the customer’s willingness to pay this price today. But if we need to increase our cost above a certain amount, this willingness to pay will decline. So how do we do this and how do we apply those steps? The first step in our process is to identify what countries are producing the components and identify where we have the most risk.

So in this example where we have all the parts loaded, we can see this regional component cost report. I’m seeing that about 70% of my spend is in China and Mexico. This shows me that there’s some serious cost impact with the potential impacts that are with the potential tariffs that are in place when I apply a tariff, you can see that this will exponentially increase the COGS. This is a great first step for understanding the impact. But in order to make any decisions on where to go next, I need some more insight. If we run a comparison on the total cost to make the e-scooter, we’ll see it’ll now cost us $248 to make. When we apply this to our projected forecast for 2025, at the current selling price, our margin would drop to 7% and we would lose 273 in profit on every scooter that’s manufactured. So to maintain margins, this means we would need to increase the selling percent selling price by 9% to 293. This results in still losing $344,000 in annual profit compared to 2024 sales. The price increase could negatively impact the growth forecast that we have for 2025 and we might be pricing ourselves out of the market as well.

Targeted Cost Reduction Through Strategic Component Relocation

Marie Magro: We need to quickly figure out how to address this to maintain competitiveness, meet the growth target for 2025 and maintain our margins. So the act of moving components from one country to another does have qualifications and other costs associated with it. And I’m unsure if financial sense to move all of the parts everywhere. So the next decision that I have to make is which components am I going to prioritize first. I created two reports breaking down the cost of these components I produce in both China and Mexico. Breaking down these parts, we’ve identified several components impacting cost as the best candidates to prioritize finding a new location. Focusing on the components that have the biggest cost impact will allow us to gain immediate reduction benefits without the burden both financially and on your team’s resources without having to resource every component. Taking a closer look at each of these components and their individual cost drivers, I can see for example the costing component has a high material and labor percentage. I also see that our brake washer has a high labor cost. Perhaps moving those parts to another country could lower that cost for us.

The other parts coming out of Mexico have a high labor cost and direct overhead rate. That would make it a good opportunity to reshore to a lower cost country as well. With these types of breakdowns and at scale that we can create them, I can also understand where a significant portion of the cost lives in something like an automated process. These might not be as bad as options to consider near shoring if it eliminates a large tariff and logistics cost. So, getting to the analyze point, let’s take a closer look at one of the parts that we want to reshore in Mexico and then run a comparison to see where this component might make sense to move. In AP design I can take a closer look at the details of this motor hub. From the cost driver breakdown, we saw material and labor as being a really high contributor to the cost. I view the material utilization and the process tab to get a better look at what is driving the cost. After looking at the cycle time and the fully burdened cost by process, these seem pretty reasonable to me.

However, the increase on the tariff will obviously make these costs even more expensive. Using aPriori’s comparison feature, I can quickly see that the fully burdened cost and the pSpark cost goes up over 20%. Let’s take a look at moving the production closer to home in the United States. In the US the labor costs which were already high and indirect overhead increased by nearly 400%. So alternatively, I also want to review what this opportunity could look like in Thailand since I do have supply base there. In Thailand, we’ve managed to reduce our cost from the original production of Mexico from 1788 to 951. We see that the material and the labor rates both reduce significantly here. By moving these additionally identified components from Mexico and China to Thailand, the cost to make our e-scooter actually goes down from 248 with the tariff to 218. Not only are we able to quantify the potential cost impacts of the tariffs, but we’re able to use our data to to make decisions on where to relocate those parts and the impacts that we may have on our COGS after finishing a qualification.

Optimization tactics:

1. Identify high-cost parts with material/labor concentration.
2. Focus on components offering largest ROI for relocation.
3. Evaluate reshoring options using detailed cost driver analysis.

April Guenet: All right, I’ll take it from there. So now that we have a plan to mitigate some of that risk, are there other ways that we can mitigate the impact from other components that we aren’t relocating out of China or Mexico? There we go. Looking at our cost outlier analysis, we can identify components with large gaps between what was quoted and what our should cost is. These outliers can offer us more opportunities for cost reduction. So we’ve identified three components that have significant gaps that we could look to renegotiate with the suppliers. Similarly to the example that Marie showed, I can dive deeper into what is driving the cost of these parts and use that as leverage during negotiations. And we actually have a really great webinar on how to use should cost to drive fact based negotiations. I have a QR code here that you can scan and and check that out. It’ll take you right there on how to actually do that. But looking ahead to some longer term strategies, I also identified that this deck assembly, we have a deck assembly that was way over our cost, weight and carbon targets. I can flag this as a VAVE project and kick it off with our continuous improvement team.

Negotiating with Suppliers Using Should-Cost Analysis

April Guenet: And we have a full collaboration story around how we redesigned this deck. Again, if you follow this QR code, we have that collaboration and design story mapped out here. But for a brief overview, our original design was for smaller scale production in the us but we were looking to scale into the EU and we needed a better option. So using aPriori, we were able to validate cost and carbon of various designs and approaches proactively leading to a bigger margin and smaller environmental impact. In a very short time leveraging global asynchronous collaboration within aPriori, the team was able to share their expert and departmental data earlier to facilitate a holistic design approach and enable agile development for this Duck assembly. So asking what if questions, getting the answers from outside their own domain expertise to develop products faster, really removing those bottlenecks while elevating everyone’s role to a much more strategic one. We were able to reduce our cost NCO to equivalent significantly throughout each iteration. Again, that QR code will bring you right to that story showing how that approach works. To summarize our actions, we were first able to identify the components that will have the most cost risk even before applying the tariff.

Cost reduction actions:

1. Run outlier analysis to flag overpriced components.
2. Renegotiate using granular cost drivers.
3. Launch VAVE initiatives to improve design and reduce carbon impact.

After applying the tariff; I was able to confirm that the Cost to make the part would increase from $225 to $248, driving our margins down to 7%. From this, I was also able to quantify the potential financial loss. So in the short term we were able to prioritize moving four parts out of China and Mexico. That would drive the greatest cost impact for us. We were then able to dive into these components to determine what was driving these costs, material and labor. We then compared alternative locations and reviewed what effect moving to a new location had on material and labor amongst other drivers like carbon. So this would further decrease our cost of goods sold from our original numbers. But since we weren’t able to move all of our parts out of China and Mexico, we will still have an increase in cost from the tariffs. However, to lessen that impact, we ran a cost outlier analysis to see if there were any further gaps in quoted cost versus should cost. And we were able to identify several components with gaps larger than 40%. This enabled us to go back to our China and Mexico suppliers to renegotiate based on the part’s individual cost drivers.

And of those gaps that we identified, we were able to renegotiate and realize at least 25% of that savings, equating to over 300,000. And then also found in our analysis was a VAVE project that we can kick off with our design engineers in the long term to meet our target costs and carbon goals. The potential impact of this project would enable us to reduce the assembly cost by roughly $100 and reduce our carbon equivalent by roughly 63kg. So to monitor progress, there are a number of shared reports that I can build and view as we relocate, renegotiate and redesign components. So as more trade regulations take shape, I can also look at some other levers such as optimizing my batch size for the greatest benefit, or may maybe even reviewing what additional tariffs I could have on material utilization across regions when finding alternative suppliers. I can also start to understand capacity requirements to help accelerate the RFQ process and streamline negotiations. And I’ll show that in just a second. So, in summary, we had three business major business challenges. One was to maintain or grow our margins and we were able to reduce our cost of goods sold by prioritizing the relocation of several high cost components located in Mexico and China.

3 Major Business Challenges Solved with aPriori:

1. Maintain/grow margins: Relocated and renegotiated components.
2. Stay competitive: Avoided price hikes; gained market advantage.
3. Make quick decisions amid disruption: Used simulation for fast analysis.

April Guenet: We were also able to renegotiate components that we didn’t move and had large gaps between the components should cost versus what was quoted, further reducing costs and increasing profitability. And then we also identified the deck assembly as A larger VAVE project with the goal of reducing costs and our carbon impact. Our second business challenge was to stay competitive within a saturated market. Customer sentiment and willingness to pay has been key to our growth targets, and having to increase our selling price could negatively impact those. So we were able to maintain our current selling price by relocating and renegotiating several components. And because we were able to pivot quickly, we were able to lock in the best rates and capacity before our competition, who may in turn have to increase their prices. We were also able to identify projects that would enable us to increase profit further and also message our carbon reduction, making us more attractive on the market. With aPriori, we were able to use those savings to accelerate product development of new features that will set us apart from our competition while remaining within our target costs. And finally, our third business challenge was to be able to make quick decisions amid disruption from tariffs and trade regulation.

And with aPriori, we were able to identify the components posing the most risk and quantify the potential impact. We were able to ask what if Questions and compare alternative locations quickly to make decisions and act faster. APriori also enables other levers to fill our pipeline with strategies that will set us up for future growth and resiliency. I’m going to launch a poll before I get into the last slide. Let’s see if it will let me launch it around how your tariff mitigation strategy typically ladders up. So is it within your individual teams or are they tied to KPIs? Do you have a strategy in place? Do you want. Would you like to learn more? Give that five more seconds. Looks like a lot of you don’t have a strategy yet in place, but you’re in development. Fantastic. Okay, so now before we open up for questions, we wanted to share some tips for setting strategic sourcing teams up for success with aPriori. So scale being able to identify the real outliers impacting your profitability. Every scenario that you push through aPriori creates tangible value for your business. The more components analyzed by aPriori, the easier it will be to identify real outliers that are impacting your profitability.

Within aPriori, you can analyze hundreds of components at once and even run that analysis across different batch sizes and regions, enabling you to identify opportunities more easily and make decisions decisions faster. The second one apply. So using your company data to embed HTS information within your AP instance, there are a number of ways that you can apply tariffs in aPriori. Based on how frequently you need to update them and the different HTS codes you may have, aPriori’s customer success team can walk you through the best strategy. Share. Empowering teams across your organization with data rich insights. So by enabling more teams throughout your organization to have access to the insights generated by aPriori, all teams on the value chain will gain benefit and accelerate the product development process. Whether that be by giving design engineers DFM feedback on their designs or having an understanding of how much capacity is really needed to manufacture that part. Enabling teams to self service across the business accelerates that digital thread. Monitor. So creating dashboards and reports that help to enable that resiliency, having outlined outcomes and specific goals with KPIs to get there will enable you to visualize that success with aPriori’s dashboards and reports to help you continue to identify opportunities or track progress and monitor for new opportunities as well.

And this next point kind of goes along with that. Advocate. Your customer success team and applied expert services team are your best advocates for success. We have customer success members, expert service consultants and value realization consultants ready to help you achieve the goals that you set for your business. And when you partner with aPriori, your customer success team works with you to build out those outlined outcomes with specific goals and KPIs and the rest of that success team is there to help you achieve them.

How to maximize value with aPriori:

• Scale: Analyze hundreds of parts for profitability insights.
• Apply: Embed HTS info and automate tariff updates.
• Share: Empower org-wide decisions with accessible data.
• Monitor: Use dashboards to track progress and spot new risks.
• Advocate: Collaborate with aPriori’s expert teams for success.

So with that I’d like to open up the floor for questions.

Audience Q&A: HTS Codes, Logistics Costs, and Reshoring ROI

Marie Magro: Okay, we got one as kind of a write in. So does aPriori have a database for HTS codes? As of right now we do not. What our vision is for that is to be able to partner with our customers and focus on the HTS codes as typically that will come from their database, their logistics team and we could, depending on the amount of effort to put in, we could either apply them at a individual part number level or we could create some automation in the background just depending on the configuration and time willing to be spent with your customer success team. So we have a bunch of different options that we can do with it, but we would rely on our customers database likely from their logistics teams to be able to map parts to HTS codes and then be able to apply the percentages from there.

April Guenet: This is similar. Does aPriori have the data on tariff based on HTS codes? Is that the same?

Marie Magro: Yep, I think that’s kind of the same thing. Again we know where we can point so it’s really all a matter of how much time we want to spend on the aPriori side which is obviously part of the agreement with any customer, like I said, there’s some simple ways that we can go about that or, and apply it more holistically or we can work with your database and your data set to be able to apply those. We have done some generics as well, but it’s really, we kind of deal with it on a customer by customer basis and how accurate they’d like to get.

April Guenet: Marie, while I have you here, I know you had experienced this in the last administration. Can you talk a little bit about that experience before really knowing about aPriori compared to now, what you do know?

Marie Magro: Yes. So in my previous role I spent or in my previous, I guess positions prior to coming to aPriori, I did spend about 11 years with various supply chain roles within different organizations, all within the same umbrella essentially. But I was a commodity, global commodity leader for eight years prior to coming to aPriori. And this question obviously came up while I was there and I was one that was tasked directly via one of the business units to say, hey, how are we going to address this and what is the impact to our overall end product? And essentially, and we didn’t have aPriori as a tool at the time nor I wasn’t totally aware that it existed, but we were looking to drive exactly this question of if I am moving this part to a different country, what do I expect it to cost? If I am moving a portion of this assembly to a different region, if we’re bringing it in house, how much capacity do I need? All of those types of informations were the high level that were kind of being talked about and our focus team, I guess that we had self prescribed, we had logistics, we had finance, we had product, we had supply chain, we had everybody involved in that team trying to answer these questions.

It took us over six months to really get to a point where we felt comfortable with a generic model to say hey, for these three high level commodities, so machining sheet metal and electronics in general for electronics, we believe that overall this commodity will cost a percent higher in this region. If we look at it, we do avoid the tariff, but we’re looking at increased labor charges, likely higher logistics, some of that kind of stuff. And with that it was not on a part by part basis and it was all based off of information that we could get from the supply chain. So again it was really important that we had strong suppliers that were very transparent with us to give us that information. We didn’t know if that cost was the best cost or the most or the most cost effective in terms of should we have been negotiating it out? We obviously had been doing that year over year, but it took us of that six months, four months was just developing the model, which is essentially what aPriori does every day and it can do on a parts basis. So instead of sending out quote packages to suppliers 4 months, 5 months after this question had been asked and saying, hey, I think I now know what I may be ready to move.

April Guenet: Can you give me what your pricing is? At that point, those prices were already inflated over what we had estimated because the suppliers were just getting inundated with requests. And so because we were not necessarily late to the game, but probably with the majority of the mass, they were getting to be choosy about where they chose, what business they wanted to do. Did they even accept what our questions were? So with aPriori, I truly feel that there’s an advantage of speed to getting these answers and being able to lock in your capacity and your pricing prior to people who are still trying to figure out, hey, if I’m moving in general this much sheet metal from this region to this region, how much is that going to cost me and is the quality qualification going to be worth it? So I definitely now for this round, I do truly believe that aPriori could have probably solved my headache of working on that full time for four months with another coworker rather than focusing on kind of our typical supply chain firefighting. Firefighting roles. But yes, very real experience. And I do believe that aPriori is a very real tool to be able to solve a lot of our headaches that we got generic answers to and not many specific.

Thank you, Marie. Yeah, we actually ended up getting some questions in while we were talking through some. I I can rattle them off for you if you. If you’d like.

Marie Magro: Perfect.

April Guenet: Okay, so here’s a good one. So seems like most companies are circling the wagon to figure out how to mitigate tariff impact. And it’s not realistic to reshore all manufacturing as capacity and skill gaps. Don’t really support that immediately. What are some strategic conversations you can have with a supplier to drive productive impact mitigation plans to reduce that overall impact to cost?

Marie Magro: So from my experience with this, and this is something that aPriori honestly does really well, whether we’re talking about tariff impact or supply chain disruption, material shortages, any of that kind of stuff, really some of the conversations that we would have, and especially looking at it through an aPriori lens is, hey, I am able to See what my highest risk parts are so I can identify those and drive my conversations around those parts. Other questions that aPriori can drive in strategic conversations is taking some of the DFM feedback and saying, hey, I see where either there’s a large gap in cycle time. From what we see that the most efficient way to manufacturing this is versus how you’re manufacturing this. Can we have a conversation about that? Like, what are we missing in this cost model? And answers that we find for that is, for example, in electronics. Oh, well, we’re manually taping before we go to masking. So yeah, the cycle time is actually probably 6 or 7x because we just have somebody applying tape. Oh, well, why didn’t we like actually make fixtures or like tooling to be able to cap those off? Oh, we just never had the conversation about NRE.

The NRE was $400. So it’s like, yes, that could have saved you significant amount of cycle time. It gains them capacity back and gives cost back to your pocket. But I think one of my favorite things about the tool is you can really get a cost outlier so you can focus on the parts where, hey, all things said and done, I’ve loaded my CAD, I’ve put in my assumptions. Why do we have such big gaps? And can we talk about what these problem parts may be? So I think that’s a big piece of it too for mitigation. Again, it allows you to see how much capacity do they need? Do they have the right machines to be able to do it? Or is it something that. And we had this all the time. Hey, I have a quote package. I don’t know what types of machines. I don’t know what types of machines are the most efficient to make it. So I’m just going to send it out to all of my machining suppliers. Well, you might get a supplier who quotes it even though they’re not the most efficient for it because they don’t want to tell you no.

So you can talk about that. You can look at material. If a material has a shortage, which parts actually have that risk? Rather than asking the question to your supplier waiting for the answer, you can be a little bit more proactive in some of those strategic conversations. So those are the few of the examples that we see every day with our customers outside of just the tariff conversation.

April Guenet: Great. Another question. Did you consider the logistics cost while comparing the parts coming from India versus made locally in the US.

Marie Magro: So logistics, we do have essentially a place to add the logistics and the total landed cost. Again, that’s so specific to our customers with their different freight providers and their lane rates. Again, that’s something that we can configure to be included, but as of right now in just a piece. Part cost, that’s not being included today. But we do have people that do configure it. They put their rates in there. We can do it dependent on distance, size, weight, shape. We have all of those metrics because we’re doing it based on CAD. So it is something that we can do but it varies so much customer to customer that we do depend on information coming from our customers to be able to fully configure that.

April Guenet: What about does AP suggest manufacturing criticality while we choose alternative material with alternative process?

Marie Magro: Sorry, I’m trying to make sure I understand the question. I think if this is highlighting the critical features and the pieces that will have either DFM or are non manufacturable, if that is. Sorry, if I’m misunderstanding.

April Guenet: That’s how I’m understanding.

Marie Magro: But yeah, we do have that built into most of our process groups. So we will show both from a DFM standpoint like hey, this feature, this finish, this tolerance is driving and adding cost. Not necessarily as it can’t be done. But FYI, this is going to drive your cost up. So just make sure that you’re talking about those features. Is it something that somebody applied a generic tolerance to everything and it was too tight and you really only needed on two piece and like two features and not the rest of the part. So it will highlight that type of stuff. And it will, if you’re looking at alternative processes and that kind of stuff, it will focus and give you DFM feedback depending on the process of the machines that it’s selecting as well. Hopefully I answered that as expected.

April Guenet: Okay, we’ve got a few more questions. Does aPriori have any indicator specifying the tariff impact within the modules where the should costs are calculated for a country being affected with tariffs? If yes, will there be an update?

Marie Magro: Probably. So not automatically, no. Again, tariffs are so specific on the HTS codes, the classifications and that kind of stuff. This is something that we can build in via tables so it can be applied to the parts as you’re costing them or to certain categories of parts. But right now in terms of like the regional data libraries, if you’re not familiar are the data sets that we pull in that have quarterly updates on material, labor overhead, machine information, social factors in terms of like vacation and holidays to apply to labor rates and that kind of stuff. That’s not something that’s in the pipeline today. Again, because it’s so varied and trying to include a table that has every HTS code of where it lands would be a seemingly impossible task just due to the, due to the quantity of that. So no, it’s not going to be automatically built in. But yes, we have a strategy and a process in place depending on the amount of information that you have to tackle that at different tiers, depending on the accuracy that you want.

April Guenet: And I think to add to that, having that foundation from aPriori in the first place will enable you to get to those answers a lot quicker. Even with not having all of the information on the HTS codes and tariffs applied. Because as you mentioned, it is an impossible task. But having that foundation and knowing where you’re your HCS codes are, it becomes a lot faster moving than having to do all of this calculation on your own. And I think that answered another one as well. And then in the cost model, is tariff added to the price tariff or to the cost?

Marie Magro: It would be the fully burdened rate at which it’s imported at. So in my experience, the importer of record is using the information as what is the price being charged for this? So for example, if it’s coming in through a supplier, it would be what’s their sell price? What are they selling to you at? And then you apply the tariff after the fact. So that is how we intend to model it. There are some differences in different scenarios where I’ve seen, hey, you have a distributor bringing it in. So you do have to do a little bit different consideration for that or intercompany transfers. Again, it should always be applied to the sell price because it has to be the full rate. It has to be the full rate. So they’re capturing a full tariff on it.

April Guenet: And I guess to add to that too, because we didn’t really touch on it in the presentation we kind of talked about with the cost drivers. But for example, like if you have a part with a material that is still on the tariff list, we saw this, we did see this last time. But if you have a material that will be tariffed, but the final manufacturing or the assembly or something is happening in the US you can apply that just to the material as well to be able to see, hey, what If I just import that material that is still going to have obviously an HTS code that is still going to have potentially a tariff because we saw that that was attacked last time. How does that still impact my unit price? It’s obviously not going to be 25% on the entire thing, but depending on the material content we can estimate that as well.

Marie Magro: I’m looking through I think for the shipping cost by weight I kind of addressed that previously. Again we rely on customers to input that typically although we have the metrics for here’s how much apart weighs if you want to tell us how many fit in a box or whatever the packaging looks like we can again we can configure for that. So I’ll look for Regarding the cost of on reshoring and the cost of change is there potential for an add on calculator to show ROI? Since tariffs come and go it’d be interesting to map the IRR. This would prevent or at least spark discussion around is it worth it to move so we do have this is definitely something that could be configured especially kind of as April was showing some of the dashboards that kind of shows the power of our analytics tool. These are all calculations that can be made. We do have fully burdened cost which estimates the cost of the non recurring engineering charges and any tooling investments that need to be made. So we definitely could look at it as a holistic and divide it by whatever rate of return that you are getting.

Obviously that requires some information of hey what is, what is the actual quoted price? What are we avoiding? What are we actually tackling here? But I think in terms of our reporting that’s definitely something that could be built as an ad hoc report in your environment with the right amount of information given. And turned into something very dashboard like as April showed in the example earlier.

April Guenet: Will you apply SG&A and profit to material tariff increase?

Marie Magro: Yes we would. And typically that because it’s going if you are getting this manufactured at a supplier and they come to you and say hey this material is specifically imported, we can only get it from that region. We can’t avoid this tariff. They’re still going to charge as SG&A and profit on top of their overall cost. I have seen where in order to split split and kind of give customers a break. I have seen some where they’ve excluded it or they’ve put the tariff on a separate line item that’s Something that we could calculate as well differently if that’s something that they’re willing to not charge. You added SG&A and profit. However, assuming that most of these are going to be typically the new cost of goods sold, I can imagine that you’d likely still continue to see price increases because again, your supply base is still going to be trying to get back to their original margins as well, unless they feel that they can survive with a lower margin for the long term. But out of the box, yes, the SG&A and profit would increase if you add a tariff to just the material content.

April Guenet: Do you have a timeline to implement the HTS code and tariff percentage in aPriori, even if they are only placeholders? For now, I think this is the one we anticipated coming in.

Marie Magro: Yes, if you need a timeline for kind of an out of the box HTS code. No, because again, that’s not really what our intent is going to be just because it’s so customer specific. But yes, we do have essentially a plan in place. There’s kind of the way that we’ve been talking about it is kind of in tiers. If you want a number that’s within 2 to 3% of accuracy and it’s like, hey, let’s just add 25% onto this set of parts. That is something that can be done very, very simply. Not a lot of configuration done all the way up to a very high level tier where, hey, we want to include tables that look at the part number, tell us exactly what the HTS code is. If we want to add logistics, costs and some of that kind of stuff into it. That obviously will take more time in terms of configuration and setup. So depending on kind of your account and your status and what accuracy level that you want to get, we do already have kind of the process in mind and how much time that would take to get set up so you could be up and running.

So if you are already a current customer, that’s something. Reach out to your CSM and your ES team. April and I can connect. We’ve been talking both with implementation and expert services, so we do have pretty good estimates for that depending on what our customers want. I can take. We still have a few minutes left. So the how is aPriori converting geopolitical issues into actionable insights for manufacturers and assemblers. In my opinion this is really just giving you data driven insights to actually go do something with. Again, previous experience is, hey, I’m applying this on a subset of parts or an RFQ group or parts that are typically at the same supplier. And really what we can do with these geopolitical issues, whether it be we’re trying to avoid risk, we’re trying to avoid tariff, we’re trying to avoid logistics all of a sudden like I mean, and even like when we’re talking about natural disaster style stuff, hey, a port gets shut down because there’s a hurricane or something like that, really what we can do is convert that into an expected dollar amount or a delta. It may not be the exact dollar amount that you will see as an impact per the parts that are impact per the parts that are affected.

But we can give you a pretty good estimate of what that delta is going to be. When you can convert that against kind of your margin to see what the overall impact to your business is going to be, it can give you a pretty good gauge of the health of your product. Of okay, do I just pay? So say that there’s something going on and all of a sudden like ships are not able to get through XYZ whatever that may be. Okay, do I have to take this from a boat and airship this over. I know the general cost of what that is. Okay, let’s add it to, let’s add it to the cost. Let’s look at the weight of the part and look at what your freight is for that. So really it’s, we’re able to assign a number so you can actually make decisions depending on what that risk is. Is it moving to a different country? Is it closing that assembly? How much capacity do I need to put a new machine in my own factory? What is that going to cost me and how much capacity do I actually need? It’s essentially putting a number to all of the actions that you may have to take so you can make more informed decisions.

April Guenet: Does AP suggest the best supply chain routing considering the impact of tariffs have been placed on a specific country as an alternative considering similar manufacturing technology, the route based on literally country or technology within different countries.

Marie Magro: So we do take into consideration technology kind of per country. Again, if you have specifics about your supply base in that country and you can say hey I know that the supplier, it’s going to be really hard to find like a 5 axis mill in this specific region or capacity on a 5 axis mill in this region, that is something that we can remove. So it doesn’t consider that. So you can see the real impact of hey, they’re not going to be able to manufacture as efficiently, but their labor cost is a lot lower. So does that end up even out? We can take that into consideration. If you are looking at different regions, typically what you’re going to see is just multiple scenarios being run and then comparing it in a comparison style report that that we showed earlier in the demo.

April Guenet: And also I think there’s another way too where you can organize the report to highlight if you know, like there’s a certain machine that requires a certain skill level, you can prioritize the parts that have that higher skill or deprioritize those parts because you know, trying to find that skilled labor in another region might be more difficult. You can kind of prioritize if you want to move that part, when to prioritize it based off of the skill level required for those types of machines or complexity.

Marie Magro: And then the last one here, is there a specific report the aPriori is working on or we can get the margin analysis based on tariff. So yes, I mean we have plenty of reports that can show margin analysis. We could show the differences in different scenarios. What was the tariff added? Right now we do not have a specific tariff based line in the UI. So it does show up in the margin, which is part of just how we’re addressing it. For the moment it is something that we’ve taken to product and we’re seeing what answer we can get back on it. But yes, there’s definitely reports that can be configured to say, hey, here’s what we’ve added, here’s what’s in the margin, here’s what the different parameters are that have been inputted, whether it be a user defined attribute or something like that. That’s definitely an ad hoc report because all the data is at our fingertips. So it’s just a matter of putting that into a view that you want to see. But no, there’s not one. If you’re in the tool and you’re looking and like out of the box or something, I don’t believe that’s one of our out of the box reports today, but reach out to customer success or your ES person and that’s likely something that we can resolve.

And then just to this other one, not as much a question, but just as a comment. Yeah, if you have, and I think this kind of goes back to our original question of are you the person that owns tariffs today? Because we know that it doesn’t necessarily live at a buyer or should cost engineer. Sometimes it doesn’t even live within the procurement org because logistics can be entirely and logistics and duties and that kind of stuff can be an entirely different team that’s dealing with this. So yeah, if you’ve seen this, if this sparks any interest or any intrigue and you want to have further conversations again, please reach out to your contact. We have plenty of people that are willing to talk to you about it here from the aPriori side. So if this is something that was interesting to you but maybe you don’t specifically own, please reach out and we can have follow up conversations and see how we can address any needs that that exist.

April Guenet: Awesome. And with that I think we are at time or just about at time. So thank you again for joining us today and like Marie said, if you are interested in learning more, please feel free to reach out. You can reach out to us, either of us directly as well. Happy to point you in the right direction and answer any other questions.

If you want to see the slides that accompany this presentation, you can watch the webinar Mitigating the Impact of Tariffs.