Zurn Elkay Water Solutions is aiming to bring its direct material spend in China to less than $30 million annually by the end of 2026, executives said during the company’s earnings call on Wednesday.
The Milwaukee-based maker of drinking water, flow systems, water safety and control products, currently spends around $127 million on direct materials from China. That total represents about 15% of the company’s cost of goods sold. Hitting the $30 million target would bring the company's China spend to just 2-3% of cost of goods sold.
Zurn Elkay estimates tariffs will cost the company $45 million to $55 million in 2025. The company has implemented price increases above its normal annual levels to offset the increased costs. While the maximum tariffs on Chinese goods are currently set at 145%, company executives noted there are a range of tariffs on various products, with the lowest being 20%.
Todd Adams, chairman and chief executive officer of Zurn Elkay, said the company has developed supply chain expertise over the past decade as it has navigated the initial round of tariffs implemented by President Donald Trump in 2017 and 2018, the supply chain and inflation shocks tied to the COVID-19 pandemic and now this latest round of Trump tariffs.
“The thing everyone is gaining a better understanding of in the recent months is that the lead time to make the kind of sophisticated changes we’ve made to our supply chain is measured in years,” Adams said.
Zurn Elkay’s goal is to minimize its exposure to China while also developing a competitive advantage position from a cost, lead time, quality and dual-sourcing perspective, Adams said.
“Some of the constraints, or I guess realities, are as an industry, there is minimal to no available domestic capacity for significant portions of what we source,” he said. “That’s before taking into consideration the cost based on things like material cost, labor availability as well as capital expenditures required to scale to the levels we and other industry participants would require to meet market demand.”
Executives were asked by analysts if the plan to reduce sourcing from China was planned or accelerated in response to the latest tariffs.
“We have done some work to source in the U.S., maybe on an accelerated basis over the course of the last three to six months,” Adams said, noting that portion of the plan is new and other sourcing shifts are to areas that might be expected. “Yes, it’s southeast Asia. Yes, it’s parts of Mexico. … I think the only thing that’s changed maybe from our plan is to bring some more sourcing to the U.S., and that’s reflected I think in all the numbers that we’re giving you.”
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