Tackling tariffs with holistic thinking

As President Donald Trump threatens tariffs on Mexico, Canada, China and others, it has left supply chain professionals in a state of confusion. How should they react? Where should they go? What do they tell the CEO?

A recent post on LinkedIn suggested the best approach was to wait for the tariff and then raise your prices. The theory, the author explained, was that we couldn’t know which country might be next on the list of potential tariffs, so making a decision on where to move supply chains or switch suppliers would prove to be difficult.

Carla DeSantis, operations transformation partner at PwC, tends to agree to a point—it will be difficult to know where to go to avoid tariffs. So, she told Supply Chain Management Review that taking a holistic approach to supply chain management is the best path forward. Successful businesses, she argued, should not make critical supply chain or value chain decisions based solely on the impact of tariffs.

“We can still go back to [the question of whether] he is playing a negotiation ploy or is it about immigrants. I think it goes beyond that. I think he wants [reshoring],” DeSantis told SCMR. “If you are trying to make those choices tied to cost of manufacturing or cost of supply, I think you are telling only part of the story. And I think that is where clients get [tied up] and don’t think it through.”

DeSantis said that while decisions based on short-term impacts such as tariffs should play a role in a firm’s supply chain decision-making, if that is the only consideration, then the business is setting itself up to fail. “You have seen the potential of tariffs exceeding profitability and revenue, so you can’t ignore it, but you need to think long-term for your business,” she said. “You have to be in a position to justify that from a business standpoint and not a tariff mitigation standpoint.”

Alternative thinking

DeSantis urged companies to think holistically, with tariffs just one of the data points. Disruptions have become more common in recent years, so reacting to only a single data point is counterproductive. In fact, DeSantis noted that sitting and waiting to just raise prices (as the LinkedIn poster suggested) is an option, but if you choose that route, “you will miss the opportunity to create a solution that you don’t have to wait to implement.” That solution, she said, may very well help you mitigate the impacts of other disruptions and set up the business for increased revenue and profit down the road (even if there is short-term pain from increased investment).

The opportunity game

That is a viewpoint that Gartner Supply Chain experts share. In an analysis released last week, Gartner noted the potential impact of tariffs and suggested strategies for turning them into opportunities. “Enterprises should recognize tariff volatility as a multiyear, dynamic event,” said Suzie Petrusic, senior director analyst in Gartner’s Supply Chain practice. “Chief supply chain officers (CSCOs) who recognize this reality should continually evaluate opportunities to invest in strengthening their operations and attract outside investments from geopolitical actors and ecosystem partners.”

Brian Whitlock, senior research director in Gartner’s Supply Chain practice, said that long-term winners are those that use this time to “reinvent or reinvigorate their business strategies, developing new capabilities that drive competitive advantage.” He added that in “almost all cases, this will require material business investment and should be a focal point of current scenario planning.”

DeSantis said that companies should be assessing where they are most vulnerable, both geographically and from a supplier standpoint, and should consider “scenario optionality.” This would include scenario optionality for their partners as well, because a supply chain is only as strong as its weakest link.

“Don’t think about this as ‘I need a tariff response plan’ but rather that I need a [supply chain optimization plan],” she said. And thinking long-term is the only way to successfully accomplish this. How does this short-term decision align with long-term planning? That is a question that needs to be considered, DeSantis noted.

Invest, invest, invest

DeSantis noted that while many companies are simply seeking to survive tariffs, the best of breed companies will be investing. That may be in people. It may be in technology. It may in supplier diversification or geographic diversification. Her advice included incorporating technology such as artificial intelligence or machine learning if you haven’t done so and leveraging it to do scenario modeling. Talking to partners, and even pre-vetting potential partners are other strategies that can be incorporated so the business is able to quickly respond to a disruption should it need to. “You figure out what are those moves for you so you have those opportunities should [you need to make a decision],” she said. “There is a lot of volatility in place, so having plans in place [is important].”

This type of planning, she argued, is beneficial for any disruption a supply chain may face.

One factor that DeSantis addressed is the upfront cost of technology investment. While not a supply chain problem, the “go-to-market” strategy of a business needs to be considered, she said. Saying that there is plenty of sensitivity to price increases right now, companies need to understand how technology investment can help mitigate some costs, such as the impact of tariffs. If investment in technology is able to create new efficiencies, it may not negate the cost of tariffs, but it may help the company hold the line on prices.

Investment should also take place in areas that make the business more agile, DeSantis said. Artificial intelligence and machine learning is helping in this area, but that “only helps with speed” in mining data faster. But, getting the data quicker is helping businesses respond quicker.

The key, she said, is not to invest in a technology infrastructure if “you don’t know what the problem is.”

Finally, DeSantis pointed to the need to approach any decisions holistically, noting that “understanding where and how your competitors are playing and where they are making moves … is really important. That’s part of the holistic game as well,” she said.

The big takeaway: While tariffs are front of mind, don’t succumb to the pressure of decision-making based on a potentially short-term impact. Instead, focus on long-term resiliency planning and if possible, use this time as an opportunity to invest in technology and processes that will set you up for future success. It may lead to more long-term business that wouldn’t happen if you “just raises prices.”

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