Supply chains have moved into the world of tariffs. They have always dealt with tariffs, but under the second Trump administration, tariffs have moved to the forefront. No longer are they simply targeted actions used to balance trade imbalances or protect American jobs. Now, they are a critical tool being used as a hammer by the administration.
And chief supply chain officers are stuck in the middle. But, according to several Gartner Supply Chain experts, tariffs also present an opportunity.
“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.”
Wait-and-see?
It’s early in the administration and many of the tariff threats such as those against Mexico and Canada may never materialize into actual tariffs. That is a point that Abe Eshkenazi, CEO of the Association for Supply Chain Management, made when speaking with the Talking Supply Chain podcast in December.
“Obviously, we want to see the actual policies that are being implemented or are being suggested,” he said. “And obviously there’s a wide range of possible outcomes, and companies are in some respects waiting to see. But … we have had some history with the Republican administration, specifically Trump’s administration.”
While companies may be in a wait-and-see mode, Eshkenazi noted that the supply chain disruptions of the past several years have positioned companies better for the uncertainty that lies ahead.
“We also had four years of disruptions that have really required almost every company to have appropriate contingency plans from sourcing to production to logistics. This is just another factor that needs to be accounted for in their contingency,” he said.
Planning continues
That planning, noted the Gartner experts, will serve CSCOs well. The concern is acting too early or too late to respond.
“CSCOs who anticipate that current tariff volatility will persist for years, rather than months, should also recognize that their business operations will not emerge successful by remaining static or purely on the defensive,” said Brian Whitlock, senior research director in Gartner’s Supply Chain practice. “The long-term winners will reinvent or reinvigorate their business strategies, developing new capabilities that drive competitive advantage. In almost all cases, this will require material business investment and should be a focal point of current scenario planning.”
Gartner has created a framework to help CSCOs achieve that perfect balance of planning and responding appropriately. It identified five possible pathways to consider. They are:
1. Retire
Some products and organizations, Gartner noted, will be stressed to the breaking point. Passing on the cost of tariffs through price increases may not be feasible in all scenarios. “In these cases, enterprises are faced with assessing the costs associated with adjusting the product to maintain viability or accepting that worsening geopolitical conditions should force the retirement of the product,” Gartner said.
2. Renovate
Tariffs could be the trigger needed to create “renovations” or adjustments to products. It also provides an opportunity to review the viability of the product and where/whether it fits within the enterprise’s portfolio.
3. Rebalance
Tariffs will trigger countermeasures, policy escalations and de-escalations, and your competitors will have a response. Gartner noted that “early deviations from the baseline should not automatically be accepted as the new normal, and additional volatility should be factored into future demand planning.”
4.Reinvent
Tariffs will offer the opportunity to invest in new projects or products, in new markets, or to repurpose current facilities for new uses. “Enterprises looking to reinvent should carefully consider when to implement such a move and whether the potential for policy escalation or de-escalation would necessitate a different approach,” Gartner said.
5. Reinvigorate
Early winners of tariffs should look for opportunities to grow their competitive advantage, whether that is expanding U.S. manufacturing capacity, or lowering prices to grab market share. “If executive leaders can entice ecosystem partners or other major actors to support or invest in their efforts, these benefits could be further solidified,” Gartner said.
Courtney Rickert McCaffrey, EY’s Global Geostrategic Business Group Insights leader, joined the Talking Supply Chain podcast to talk about the geopolitical challenges facing supply chains and how they can prepare to navigate an uncertain future. She emphasized the importance of scenario planning.
“A lot of C-suite leaders really want predictability and certainty in the environment they face,” she said. “That's actually more important … than maybe some of the specifics of what that environment is. Going forward, what we’ve seen is because of that uncertainty. A lot more C-suites and boards as well are turning to scenario analysis and tabletop exercises and other kinds of strategic foresight methodologies to try to … get their arms around it [that uncertainty].”
Scenario planning is part of the process to take advantage of opportunity. Tariffs may seem counter-intuitive to building business, but some experts, like those from Gartner, believe opportunity lies ahead for the companies that attack tariffs proactively rather than reactively.
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