How tax implications affect the supply chain operating model

In the US, the Tax Cuts and Job Act of 2017 created incentives for businesses to move production closer to home. Meanwhile, a shift in global demand toward high-growth markets, particularly China, is changing global trade patterns. In addition, civil unrest and instability in some Asian countries are also causing companies to rethink their supply chains. 

Tax consequences associated with global supply chain operations can overshadow other supply chain costs, a dynamic that poses a trap for businesses consumed by other considerations.

Tax impacts can be felt via indirect taxes, such as customs duties, or through direct taxes – levies placed on profit realized in a specific location.

Another valid concern arising from global supply chains is the cross-border risk of potential blockages or delays of critical shipments. These hazards can shut down production lines or otherwise degrade service to key customers.

But tax implications should be top of mind even for organizations with domestic supply chains. For example, companies that miss opportunities to avail themselves of tax credits and incentives when locating a new manufacturing plant can put themselves at a competitive disadvantage.

These moves have aided a variety of types of companies. In one instance, EY assisted a multinational food and beverage company with its supply chain flow optimization, a project that included design through operations, manufacturing consolidation, and global planning and strategy. The client realized $400 million in direct cost savings, a simplified manufacturing footprint, and an annual revenue increase of $4 million through automation and innovation.

EY also assisted a multinational luxury vehicle manufacturer with a global strategy for duty costs implemented in major markets that accounted for most of the client’s global export sales. The organization achieved an annual savings of $150 million in global duty costs. In addition, we are helping several apparel and technology companies redesign their supply chains in response to impacts brought on by deteriorating international relations, civil unrest and trade disputes across the globe.