CFOs are strategizing to protect their supply chains from drastic price hikes and product shortages.
At the recent HealthLeaders CFO Exchange CFOs were both "terrified" and eager to discuss: tariffs. They talked about their concerns for supply costs and how they will navigate potential vendor shifts and cost hikes.
Strategizing for tariffs
"Hope is not a strategy," one of the executives said. While strategizing for tariffs is difficult because of so many variables, they agreed on a few proactive steps:
-Examine inventory; stock up to offset anticipated shortages.
-Monitor any variances in the supply chain, even minor changes.
-Maintain good communication with distributors and ask their opinion on where they believe shortages may occur.
-Create tariff reaction teams or government groups to stay on top of changes.
-Use companies that monitor healthcare vendors to predict who will be affected by tariffs and by what percentage.
What CFOs are saying
Many Exchange members said they did not have a formal plan to combat tariffs, and they expressed concern that the potential impacts could be serious.
Working with vendors during this time is hard, members said, as they donโt often announce price increases in advance, despite being tied to a contract. Some CFOs said they have had success using companies to monitor their supply chain and hold vendors accountable.
Brad Hipp, CFO and vice president of Tucson Medical Center (TMC), said his organization is working with its GPO to take l steps to ensure access to supplies at the highest risk for supply disruption and financial impact. This includes setting up a "cross-functional tariff command center to track developments, coordinate responses, and provide real-time insights."
"By partnering with our GPO on mapping of manufacturing we can target the necessary steps to increase inventory of these specific supplies to mitigate risk," Hipp said. "Although disruptions seem imminent, it will be the facilities that have the infrastructure to act swiftly and thoughtfully on how to drive organizational cost down to offset any tariff impacts that will weather the storm as we did in 2019."
Tariffs often manifest in the form of shortages first, then price increases, so stocking up on potentially affected products and equipment could help. But forecasting exactly where to stock up is still tricky. One area of concern is orthopedic surgery, which could see price increases for implants;
The Industry Snapshot
The healthcare industry is very concerned about the potential effects of tariffs and how to budget for them. Tariffs on goods from Canada, China and Mexico are expected to increase healthcare costs by at least 15% this summer, according to a survey by Black Book Research.
The Trump administration has enacted the following tariffs, as of today:
- 10% universal tariff
Went into effect on 5 April - 25% on cars and auto parts (with some exceptions)
Went into effect on 3 May - 30% tariff on Chinese imports (with some exceptions)
Went into effect on 13 May - 25% tariffs on goods from Canada and Mexico, not covered in the USMCA
Went into effect on 4 March
Paused Tariffs:
- "Reciprocal" tariffs, until 8 July
Paused on 9 April - Higher tariffs on Chinese goods, until 12 August
Paused on 13 May
Trump has also proposed tariffs on pharmaceuticals, (which are usually exempt).
The HealthLeaders Exchange is an executive community for sharing ideas, solutions, and insights. Please join the community at our LinkedIn page.
To inquire about attending a HealthLeaders CFO Exchange event, email us at exchange@healthleadersmedia.com.
Marie DeFreitas is the CFO editor for HealthLeaders.
KEY TAKEAWAYS
Tariffs have CFOs shaking and scrambling to prepare, even though they are unsure where to do so.
CFOs know that every small component in the supply chain matters.
Outside companies may be able to help mitigate supply chain risks and forecast effectively.