We’re entering an era of tariff threats and uncertainty that could have significant impacts, not only on your procurement efforts but your entire supply chain.
The Trump administration has announced plans for steep tariffs across a wide range of goods and countries.The situation is changing weekly, and the uncertainty will likely continue. Whether the tariffs are permanent or a temporary negotiating tactic, supply chains need to be prepared for a range of scenarios.
To manage the risk of new tariffs, companies need to take steps so they don’t have to pass 100% of the cost of new tariffs to their customers in the form of price increases.
Tariff Uncertainty and Supply Chain Agility
Much of the media attention around tariffs has focused on the possible price increases for finished goods imported from overseas, but the impact of price increases on raw materials and components for products to be manufactured in the U.S. will also be an issue.
Software can help organizations plan by automating the analysis of procurement decisions needed to support your chosen strategies — including creating optimal time-phased, multi-sourcing plans, identifying and onboarding alternate suppliers, finding substitute items, analyzing the impact of prices on demand, and doing what-if scenario planning.
In this article, we’ll discuss some of the steps that companies can take to make their physical supply chains more agile.
Supply Chain Strategies to Offset Tariff Risks
A single strategy will likely not be enough to counter tariff effects. Organizations will need to strike a balance between short-term and long-term solutions.
Short-term inventory solutions
When companies have advanced notice of planned or predicted tariffs, stockpiling inventory (also referred to as strategic buying) allows companies to lock in lower prices before tariffs take effect, usually with several weeks’ or months’ notice. The extra inventory is stored for future use or resale. With the right approach, companies can significantly mitigate the impact of tariffs in the short-term.
Supply chain planning software can help you analyze the tradeoffs.
If you’re going to stockpile, you’ll need to decide how much — considering forecasted demand, inventory carrying costs, order handling and borrowing costs, and more.
Needless to say, stockpiling can be risky. You don’t really know how long it may take to use the extra inventory. If market demand changes, you may be forced to sell at fire sale prices or write it off completely. You could potentially face a cash shortage due to the hit on your working capital.
Modeling short-term solutions
You may be tempted to model tariff impacts in a spreadsheet, but that would be a mistake. Spreadsheets are notoriously error-prone, not standardized, and slow.
Your best bet is to use an enterprise supply chain system, where you can standardize your approach, factor in your replenishment requirements, and quickly make decisions to take advantage of strategic buying opportunities. That’s exactly why we’ve incorporated strategic buying functionality into our Buyers Workbench application.
But while strategic buying is one of the first strategies companies rely on, it’s just one of several strategies relevant to tariffs. Let’s look at additional options next.
Longer-Term Strategies for Supply Chain Agility
While these next strategies can be very effective, expect them to take longer to implement. You’ll want to start planning to implement these options concurrently with any short-term adjustments you make.
Geographic diversification
Diversify supplier and manufacturing countries so that if a high tariff is levied against one country, you can switch suppliers or manufacturing locations to a country with lower tariffs. Since the pandemic, many companies have already branched out from China to Southeast Asia, India, and Latin America. The threat of tariffs should accelerate this trend.
Onshoring and vertical integration
To minimize the impact of tariffs, some companies are considering onshoring supply and/or moving manufacturing to the U.S. or other regions less likely to be affected by tariffs. This gives them more control over costs and lessens exposure to tariff-related price fluctuations.
Product engineering
Engineers can design into products the flexibility to use substitute raw materials and components that incur lower tariffs. (This is similar to geographic diversification, but instead of getting the same item from a different country, you use a substitute item that may be easier to source from another country.) You may also modify product specifications to allow for more supplier options or redesign products completely using modular options that allow for more sourcing versatility.
Contract renegotiation
Your company may benefit from revising your supplier agreements to include options like cost-sharing the increased impacts of tariffs or adding greater flexibility to adjust pricing or volume based on tariff impacts. Lock down longer-term, fixed pricing wherever possible.
You may combine these approaches and more into a contingency playbook to lower risk and build supply chain resilience.
The Role of Supply Chain Software
The first step toward managing risk is to find your organization’s vulnerabilities. Specialized, AI-powered supply chain software can help organizations identify and prepare for tariff-related vulnerabilities in several ways.
Identify potential supply chain vulnerabilities
Supply chain planning software will allow you to:
- Model different tariff scenarios (e.g., 10%, 25%, or 50% increases) across the supply chain. It will calculate the impact on total landed costs for each product and component, factor in currency exchange fluctuations, and generate profit margin impact reports at product and portfolio levels.
- Analyze your supplier network and flag single-source suppliers in potentially affected regions, map complete multi-tier supplier networks, including sub-suppliers, identify components and materials sourced from high-risk tariff regions, and calculate the percentage of your supply chain exposed to specific trade relationships.
- Assess your bill of materials (BOM) by breaking products down into their components, tagging components by country of origin, identifying which parts of BOMs would be impacted by various tariff scenarios, and suggesting alternative components and suppliers in non-affected regions.
Procurement functionality
Procurement planning software can help you evaluate the impact of sourcing from different countries and of using substitute items (with the resulting different prices, tariffs, lead times, etc.)
New Horizon’s Buyers Workbench, for example, can enable you to quickly analyze the tradeoffs between the savings from stockpiling items before tariffs kick in vs. the inventory holding costs of doing so.
Our procurement functionality also allows dual or multiple sourcing based on time and percentage split. For example, you may choose to source a component from China up until March 31, then from Thailand after April 1 when tariffs start on Chinese goods. Our software automates this to minimize the net purchasing price. Check that your software package does this. Not all can plan ahead to split by date.
Demand planning functionality
Companies can use demand planning software functionality to forecast the effect of price changes on customer demand.
Using historical data, companies can model price elasticity to predict demand changes at different price points while also tracking how customers might shift between product lines or switch to alternative products. Software can analyze substitution effects and changes in product mix, helping organizations identify new opportunities for alternative products in categories affected by tariffs.
Supply chain planning software can also provide deeper insights into how your competitive position might change as prices evolve. It can forecast different impacts across sales channels like e-commerce and retail, and layer tariff effects over normal seasonal patterns to identify high-risk periods and adjust inventory strategies accordingly. This kind of comprehensive analysis helps businesses make more informed decisions about pricing, inventory, and product mix in response to tariff changes.
Scenario modeling
With advanced scenario planning, supply chain leaders can go beyond traditional forecasting methods to evaluate various possible future outcomes and understand the impact on revenue, costs, and profit, allowing companies to plan accordingly.
Strategic planning software can generate nuanced projections that account for implementation timelines, competitor responses, and intricate market-specific variables. These sophisticated modeling capabilities allow companies to transform potential economic disruptions into strategic opportunities.
Businesses can generate risk-weighted forecasts that assign probabilities to different scenarios, create detailed financial impact analyses, and develop targeted action plans. The tools can project demand changes at granular price points, model cash flow implications, assess working capital requirements, and even generate market-specific response strategies.
You can also evaluate the strategic trade-offs of potential actions, moving from reactive decision-making to proactive strategic planning.
Scenario planning is included in New Horizon’s Sales and Operations Planning. Plan at the appropriate level of detail — monthly, quarterly, or annual. Run plans quickly and simulate various what-if scenarios based on different assumptions. Evaluate and compare alternative plans and pick the best one.
Adapt and Even Thrive During Tariff Uncertainty
There are many approaches supply chain leaders can take in anticipation of possible tariffs under the new Trump administration. Supply chain software can enable these strategies, faster and more reliably than trying to model them with spreadsheets.
The New Horizon platform enables planners to make contingency plans, plan for dual sourcing, substitute components, load up on inventory, and more. You can then analyze and report on the impacts of your risk mitigation efforts.
Stop reacting and start planning strategically.
To Learn More
To learn more about how New Horizon can help your organization prepare for tariff uncertainty, talk to one of our experts.
