Five approaches to mitigate tariff disruptions in your supply chain

Since taking office in January, President Trump and his administration have made weekly and sometimes daily announcements on tariffs, whether for longtime trade partners or geopolitical rivals—most of which have not yet been imposed. Executives are left to wonder: Are these pronouncements a negotiating tactic to drive more favorable results for U.S. businesses and citizens or will they become business realities that companies will have to navigate? How should executives respond to the latest news cycles?

These developments have many of our supply chain clients whipsawing between business-as-usual complacency and panic, often in the span of a few days. For instance, when President Trump announced an additional 25% tariff on imports from Canada and Mexico, we woke up to over a thousand emails and 100 pings from clients and work colleagues, reflecting the shockwaves resonating throughout unprepared C-suites. But the market does not offer much forgiveness when executives are not prepared for what is predictable, even if the threat is short-lived.

Most supply chains rest on carefully considered plans, involving strategically located manufacturing and distribution sites, value chain partners that can circle the globe, and internal functions such as legal and tax. Those plans risk immediate disruption from imposed tariffs, with short-term and possibly long-term ramifications.

With the potential for escalating retaliatory actions by trading partners, companies must navigate an increasingly complex landscape where every decision can have significant financial repercussions. Here are five ways to shake off complacency for resiliency with the benefit of improving your supply chain and organizational alignment.

1. Creating a cross-functional disruption response squad

Many companies lack the foundation for acting decisively in the heat of the moment. It circles back to a perennial problem for organizations: siloed functions. Amid the threat of tariffs, supply chain teams need input from tax, trade, financial teams (including the CFO) and commercial functions. Some of the impacts of tariffs are less visible, such as the link between transfer pricing and customs valuation. And there are sector implications: in life sciences companies, for example, the trade function oftentimes resides in supply chain due to the importance of import licenses and permits, activities that are generally best supported by the “business” and in the supply chain department.

This required collaboration should go far beyond monthly team calls or relationships at the top: it happens at an execution level. It is fostered by developing an appreciation of how supply chain decisions impact the entire organization’s performance and value creation, as well as how imposed tariffs can upset that balance. Then that appreciation, informed by current events, is cascaded into daily working practices.

Forward-thinking organizations are building response squads that provide key business functions a seat at the table, sometimes engaging outside consultants—the best minds across domains who collaborate on specific issues, much like a specialized center of excellence. These squads meet on an ongoing cadence, recognizing that potential disruptions are not one-off events. They examine emerging possibilities in the landscape, discuss them regularly, help evolve the infrastructure for data-driven action and ultimately orchestrate execution. Drawing from simulations and tabletop exercises, the response squad is tasked with strategic thinking today so that actions can begin tomorrow, when warranted.

2. Evolving the infrastructure for data-driven decision-making

Enterprise resource planning (ERP) data may not provide a complete picture of a company’s trade dynamics and the impacts of tariffs. For instance, companies may struggle to fully understand how quickly prices are changing or to gain insight into pricing tiers within the supply chain and their effects on financial forecasts. Additionally, internal data may not be properly integrated to model the relevant attributes accurately. For example, information about imports sent to U.S. Customs and Border Protection, which is part of an automated commercial environment, is crucial for modeling the impact of reciprocal tariffs.

This comprehensive data on trade must be complemented with other data feeds to gain insights into the current state and impacts of tariffs, facilitating rapid decision-making in response to the changing landscape. There are many factors to consider in manufacturing and logistics planning, and analytics can help businesses quickly assess the effects of tariffs on timelines and costs, enabling them to pivot strategies as needed.

3. Better understanding your full value chain

Even that data is likely not the full story, unless you have a very advanced supply chain that incorporates information from strategic partners in your value chain and incorporates their exposures. Any change, whether in the form of tariffs or customer demand, has to work its way linearly back through the supply chain to get to the original equipment manufacturer, the supplier, the supplier’s supplier—all through the tiers. It could take months before people change their production plans. Some companies banking on ramping up imports before a tariff goes into effect will likely face such a bullwhip effect up and down their supply chain.

There’s nothing to lose by understanding your value chain better—instead, you are positioned to optimize it rather than ending efforts at your warehouses and plants. Advanced players are evolving their supply chains toward digitally networked ecosystems with shared data in the cloud so that everyone can see what’s happening now, immediately adjust to real-time events and even predict what happens next.

4. Adapting business strategies, including network optimization

Better and broader data should guide you toward a range of clarifying actions in response to tariff changes, including diversifying supply sources, renegotiating contracts, and exploring free trade zones and alternative markets. Companies should ask: At what sustained level of tariffs, and at what tiers, do we need to change gears? Often, an analysis like this, when informed by better and broader data, can take up to 12 weeks, allowing potential disruptions and cost implications to be visualized.

Network optimization, which involves physically changing your organization’s footprint, may also need to be considered. This approach enables businesses to strategically assess and adjust their manufacturing, logistics and sourcing strategies in response to potential cost increases. Companies can identify the most efficient routes, suppliers and distribution centers, allowing them to minimize transportation costs and lead times. Contingency plans that incorporate insights from network optimization and data analysis enhance agility and resilience in the face of tariff fluctuations.

5. Performing proactive policy reviews

Regularly reviewing customs valuation and transfer pricing policies will help ensure compliance and optimize cost structures in light of tariffs. Thorough assessments of these policies should be conducted to identify areas for improvement and potential savings, while continuous monitoring of trade policies and market conditions is vital for anticipating changes.

It's crucial to recognize the significance and potential impact of complexities of global trade and tariff dynamics, particularly at this time. Remaining agile and prepared for whatever challenges lie ahead is essential. These steps are vital not only for navigating a fluctuating trade landscape but also for the everyday operations of your business, especially as agility is becoming more and more valuable in supply chains. By implementing these five actions, your team will be better positioned to gain insights and collaborate effectively, ensuring that the lifeblood of your organization—the supply chain—remains robust and resilient.

About the authors

Lynlee Brown is a partner in the Global Trade practice of Ernst & Young LLP. AI Mendoza is the EY US and Americas Supply Chain & Operations Practice Leader. The views reflected in this article are those of the authors and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.

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