Procurement & Sourcing

Helping Canadian SMEs Navigate U.S. Tariffs

US tariffs on Canadian goods will likely lead to increased costs, supply chain disruptions, and reduced demand for Canadian export. These factors are likely to have a particularly strong impact on SMEs who may lack the scalability and size to absorb these costs.

How can SMEs Strengthen Procurement Practices while Keeping Costs Under Control?

Let's Look at the Procurement Cycle

The procurement cycle is the set of steps that lead into one another during the sourcing and securing of goods or services.

Identification of needs
Purchase request and approval
RFX—request for information (RFI), a request for proposal (RFP), and a request for quotation (RFQ)
Vendor evaluation, vetting, and selection
Contract negotiation and agreement
Implementation and delivery
Supplier performance evaluation

The procurement cycle is continuous. The final stage—evaluating supplier performance—feeds into earlier stages. If the supplier meets expectations, the cycle returns to contract negotiation and renewal.

Where can Tariff Impacts be Seen Across the Procurement Cycle?

Higher Costs and Reduced Competitiveness:

Increased Operational Costs:

Tariffs will make it more expensive for Canadian businesses to export to the U.S., potentially leading to higher prices for consumers or reduced profitability for companies.

Condensed Profit Margins:

Canadian businesses, especially SMEs, may struggle to absorb these increased costs, leading to reduced profit margins and cash flow.

Reduced Competitiveness:

Canadian goods will become less competitive in the U.S. market compared to U.S.-based products.

Supply Chain Disruptions:

Cross-Border Supply Chain Issues:

Canadian businesses rely heavily on cross-border trade for raw materials and components; tariffs could disrupt these networks, leading to delays and higher costs.

Difficulty in Finding Alternatives:

SMEs may struggle to find and integrate alternative suppliers or adjust their supply chains at a rapid pace, potentially leading to loss of profit and operational inefficiencies.

Specific Challenges for SMEs:

Lack of Financial Buffer:

SMEs often lack the financial resources to absorb increased costs, making them more vulnerable to the impact of tariffs.

Difficulty in Diversifying Markets:

SMEs may find it difficult to quickly diversify their markets or adjust their business strategies in response to tariffs.

Increased Pressure on Pricing:

SMEs may be forced to raise prices, potentially losing customers to competitors or experiencing a reduction in demand.

Potential for Retaliatory Measures:

Canadian Countermeasures:

Canada may impose tariffs on U.S. goods in response, potentially further disrupting trade relationships and creating uncertainty for businesses on both sides of the border.

Large companies are better positioned to achieve procurement cost savings, but small and medium-size enterprises often lack the scale to do so.

SMEs typically have less purchasing power due to limited range and reliance on single suppliers, making competitive pricing harder to offer. Additionally, SMEs may struggle to control spending effectively, leading to slow, inconsistent, or suboptimal value capture with unintended outcomes.

For SMEs, effective procurement strategies involve optimizing supplier selection, leveraging collaborative opportunities, and implementing cost-saving techniques to maximize efficiency and reduce expenses.

Key procurement strategies that can help SMEs optimize their processes and achieve better outcomes:

Supplier Selection and Management:

Thorough Research and Due Diligence:

Conduct comprehensive research on potential suppliers, evaluating their capabilities, reliability, and financial stability.

Supplier Scorecards:

Implement supplier scorecards to track performance and identify areas for improvement.

Negotiation Skills:

Develop strong negotiation skills to secure favorable terms and pricing from suppliers.

Supplier Relationships:

Build strong, collaborative relationships with key suppliers to foster trust and long-term partnerships.

Diversification of Suppliers:

Avoid relying on a single supplier to mitigate risks and ensure a stable supply chain.

Cost Reduction and Efficiency:

Spend Analysis: Analyze spending patterns to identify areas where costs can be reduced.
Negotiation Strategies: Employ effective negotiation techniques to secure better prices and terms.
Technology Integration: Utilize technology to streamline procurement processes, automate tasks, and improve efficiency.
Standardization: Standardize processes and procedures to improve efficiency and reduce errors.
Inventory Management: Implement effective inventory management practices to minimize holding costs and prevent stockouts.

Collaborative Opportunities:

Buying Groups: Explore opportunities to join buying groups or consortia to leverage collective buying power and negotiate better terms.
Industry Networks: Collaborate with other SMEs or industry networks to share information and best practices.
Public Sector Procurement: Explore opportunities to participate in public sector procurement, which can provide access to larger contracts and market opportunities.

Risk Management:

Supply Chain Resilience: Identify potential risks in the supply chain and develop strategies to mitigate them.
Financial Risk Management: Implement sound financial risk management practices to protect the business from financial losses.
Legal Compliance: Ensure compliance with all relevant laws and regulations related to procurement.

Navigating the Tariffs:

Evaluate Alternative Suppliers:

Businesses should explore alternative suppliers and review contract terms to ensure flexibility in case of disruptions.

Diversify Markets:

Focus on reducing reliance on the U.S. market and explore opportunities in other regions.

Focus on Innovation and Quality:

Invest in modernization, innovation, and high-quality products to remain competitive in the face of tariffs.

Seek Government Support:

Businesses are encouraged to explore government programs and resources designed to help mitigate the impact of tariffs.

Canadian SMEs have the ability to innovate, diversify and remain competitive in this shifting global market.

Through adoption of strategic adjustments, these businesses can mitigate and plan for the risks posed by the pressures of tariffs.

Canadian SMEs remain a cornerstone of the nation’s economy, capable of weathering challenges while playing a vital role in driving growth and creating jobs. As the global trade landscape evolves, SMEs can pivot at each point of the procurement cycle to not only withstand adversity, but also to capitalize on new opportunities to thrive.

Stay tuned for our STARTUP SERIES in April!

Author Bio

Kate Schneider, VP of Supply Chain Solutions at VSBC, specializes in communications and logistics optimization for lifestyle retail brands. She is passionate about driving peak-season efficiency and operational excellence.

Visit us at www.vsbusinessconsulting.com