Risk and volatility are back at the top of the supply chain agenda. A new wave of U.S. tariffs - and China’s swift retaliation - is threatening to upend global networks once again, just as they’ve begun stabilizing post-pandemic.
The impact
As we see it, the volatility created by the tariffs and the looming threat of trade war are really going to impact the supply chain in three key areas:
- Risk ripples
Electronics, packaging, and raw materials from China specifically and south-east Asia more generally sit deep within most supply chains, and impacts here will all have significant impacts on the smooth operations of dependent supply chains across the world. - Maritime disruption
Tariffs mean more paperwork, driving up customs timelines at ports and borders, especially while everything is still in flux. They will also impact the price of fuel, hitting already volatile maritime indexes and making it harder and more expensive to ship freight. Putting even greater pressure on already strained global networks is pushing businesses to consider shifting production closer to demand. - The cost of safety
Planners are going to have to balance the need for likely higher levels of safety stock with P&L exposure. At a time when inflationary pressures are still high, anything that eats into working capital is a risk that needs to be carefully considered.
There are other factors at play of course, but with so many of these issues coalescing with each other, it is clear that what worked yesterday is not going to cut it today.
How can supply chain planners respond?
Supply chain resilience, now more than ever, is dependent on adaptive, collaborative planning and execution activities that are capable of detecting and responding rapidly to change.
Pragmatic supply chain planners will be working on the following:
1. Improving scenario planning capabilities
Improving scenario planning isn’t just about having contingency plans - it’s about building the capability to respond before disruption makes landfall. With the increasing pace and complexity of tariff changes, planners need to be able to simulate dozens of different ‘what-if’ scenarios.
Effective scenario planning means being able to map cost, operational and customer impacts of disruptions across your supply chain, as well as assess the trade-offs of mitigation strategies like alternate sourcing, pricing changes, promotion introductions or shifting inventory. The goal isn’t perfection, that’s impossible. But readiness - being able to act with confidence and speed when one of those scenarios becomes a reality - is the key.
2. Gaining deeper visibility into the risks of suppliers
Supplier visibility needs to go far beyond your immediate tier 1 partners. Many of your most vulnerable points of failure - especially when it comes to tariffs and political risk - sit at the tier 2/tier 3 level. A component that’s assembled in Europe, for example, could be using semiconductors that originate from a Taiwanese supplier that is facing steep new tariffs. Without clear visibility into these dependencies, you’re oblivious to potential areas of risk.
Building this kind of visibility takes time and effort. You need to collect better data from your suppliers, and integrate this into your planning and procurement tools, while also mapping upstream exposure with your partners. The payoff is considerable though - with deeper insight you can identify critical points of failure, reduce bottle necks and plan sourcing strategies that are as resilient as they are cost-effective.
3. Conducting regular, thorough stress testing
Stress testing shouldn't be an infrequent or one-off exercise tied just to annual cycles - it needs to be a regular part of your supply chain planning. The goal is to actively test and understand how your network would hold up under a range of shocks - be there tariffs, shipping delays, supplier failure or sudden demand surges (to name only a few potential issues). That includes evaluating how quickly you could shift production from one region to another, whether you have alternate suppliers in place, or what would happen if a distribution center or hub became inaccessible.
Modelling these stress points in advance helps you uncover gaps in your ability to absorb and respond to sudden change, as well as identify where investments in resilience (automation, regionalised DCs or diversification of sourcing) could pay off. It also helps you align operations and finance, by quantifying the trade-offs between cost, speed and resilience when under pressure.
4. Localizing inventory where possible
Inventory strategies built for cost-efficiency are often the most vulnerable in times of disruption. Centralized warehousing and just-in-time models are efficient on paper - but fragile in the face of volatile trade environments. Localizing inventory - by building regional buffers that serve specific geographies - can help in maintaining service level even when international routes are unstable. Don’t think of it as stockpiling per se, but identifying the critical products and regions where additional safety stock can offset supply risk.
Decisions like these need to be made based on real-time data that reflects demand volatility, supplier lead times and logistics constraints. Importantly, it needs to be done in conjunction and collaboration with finance in order to ensure that working capital is optimized and additional inventory doesn’t become a drag on cash flow.
5. Leverage the power of ML forecasting
Traditional forecasting methods can struggle to keep up with the kind of volatility that external factors like tariffs can cause. Tools like machine learning forecasting, on the other hand, enables planners to build more responsive and resilient models by continuously incorporating a wider range of external factors alongside their historical data. Such models adapt in near real-time whenever new data becomes available, making it easier to spot early signals of disruption or cost shifts, and understand their impact.
This enables businesses to respond proactively to change, and make more informed decisions about the trade offs between service levels, cost and margin.
Modern planning tools like Pigment that support ML forecasting can help supply chain teams move past their static, Excel-based processes in order to enable faster, more collaborative planning that provides them with the visibility they need to plan with confidence, even in the face of uncertainty.
Learn more about Pigment for supply chain here.
