In today’s volatile global trade environment, automotive companies are facing the challenge of managing and predicting the impact of tariffs on their operations. There are immediate questions to be answered, such as, what impact will there be to the bottom line if we don’t pass this on to the consumer? What is the projected impact to demand if we do? Along with other questions, such as, what happens if we move the manufacturing or assembly of this product to a different location? With legacy planning methods such as spreadsheets or other manual approaches, this quickly becomes an overwhelming, slow, and potentially error prone exercise. Certainly, not an approach that creates analysis timely enough to keep up with the changing external forces. At Tek, we have been delivering planning solutions to leaders in the automotive industry for a while now. We have seen first-hand how an industry leading solution in planning and analytics (SAP Analytics Cloud) can provide the perfect tool for organizations to leverage in times like these. This article explores how SAP Analytics Cloud’s (SAC) advanced planning functionality can help automotive organizations conduct sophisticated what-if scenario analyses to model and prepare for various tariff scenarios, enabling more informed strategic decision-making and an optimized response to the situation.

The Tariff Challenge in the Automotive Industry

As you are probably aware, the automotive industry is experiencing significant disruption due to evolving trade policies and tariff implementations. Recent developments have shown that tariffs may substantially impact on the industry. We have seen estimates indicating that a 25% tariff on imported vehicles and parts could increase vehicle prices by $3,500 to $12,000 per unit. These changes have far-reaching implications across the entire automotive value chain, affecting everything from supply chain decisions to pricing strategies, incentive plans, and market competitiveness. The complexity of automotive supply chains, where components often cross borders multiple times before final assembly, makes tariff impact analysis particularly challenging. (Perhaps not quite as challenging as predicting the impact of a major volcanic eruption on distant locales, but close!) This complexity necessitates sophisticated planning tools that can model multiple scenarios and provide actionable insights for strategic decision-making.

A Comprehensive Solution for Tariff Impact Analysis

The nice thing about SAP Analytics Cloud (SAC), is it is a bit of a one stop shop in situations like this! It offers a unified platform that combines planning, analysis, and predictive capabilities, making it ideal for companies seeking to understand and prepare for tariff impacts. The platform’s integration capabilities allow organizations to connect various data sources, providing a comprehensive view of their operations and enabling more accurate scenario modeling.

Advanced Scenario Modeling Features

The driver-based planning functionality in SAC enables automotive companies to model scenarios based on key business drivers, including raw material costs, component pricing, labor costs, and transportation expenses. This allows organizations to understand how changes in these variables affect their overall business performance and financial outcomes. Robust what-if analysis features empower users to simulate different tariff scenarios and their impact on costs, while simultaneously modeling supply chain alternatives to minimize tariff exposure. Organizations can analyze potential market responses to price adjustments and evaluate the financial implications of relocating production or assembly facilities, all within a single integrated environment.

Real-Time Data Integration and Analysis

SAC’s ability to provide real-time data access and analysis ensures that scenario modeling is based on the most current information available. This capability is particularly valuable in the rapidly changing trade environment, where tariff policies can shift quickly and require immediate response planning. The integration with various data sources enables automotive companies to maintain a comprehensive view of their operations and make data-driven decisions with confidence.

Practical Applications for Automotive Companies

Strategic Planning and Risk Management: Automotive companies utilizing SAP SAC can develop comprehensive tariff impact scenarios while identifying potential risks and opportunities. The platform enables organizations to create detailed contingency plans for various tariff implementations, optimize their supply chain configurations, and model alternative sourcing strategies. This comprehensive approach to strategic planning ensures that companies are well-prepared for various tariff scenarios.

Financial Impact Analysis: The platform facilitates detailed financial modeling of tariff impacts through comprehensive cost structure analysis, margin impact assessment, and revenue forecasting under different scenarios. Organizations can model price elasticity and project working capital requirements, providing a complete picture of the financial implications of various tariff scenarios.

Conclusion

In an era of increasing trade complexity and tariff uncertainty, SAC provides automotive companies with the tools needed to model, analyze, and prepare for various tariff scenarios. The platform’s combination of real-time data access, sophisticated scenario modeling, and integrated planning capabilities makes it an essential tool for automotive industry executives seeking to navigate the complexities of international trade and tariff policies. As the automotive industry continues to face trade-related challenges, the ability to conduct detailed what-if analyses and make data-driven decisions becomes increasingly crucial for maintaining competitive advantage and ensuring long-term success. SAP Analytics Cloud stands as a powerful solution for organizations seeking to transform their approach to tariff impact analysis and strategic planning.