A Supply Chain Playbook for Tariff Response

From stockpiling to reshoring, U.S. manufacturers are rethinking operations as new tariffs take hold. But while a wait-and-see approach might seem tempting, they need to be actively assessing their options and preparing to implement changes decisively.

There are a number of steps that can be taken to mitigate supply chain risk and increase resilience — if you start now. Following are some recommendations for action.

Diversify your vendor list. Reliance on a small group of vendors is always risky. You’re more vulnerable to disruption from things like natural disasters, geopolitical issues and regional economic instability. Working with multiple vendors will also help you negotiate better pricing terms and provide more options to scale production up or down based on market demand. Validate which tariffs impact which region. It’s worth looking outside those areas for possible new partners. Increasing U.S. production is ideal, of course, but it might not always be possible.

Formalize pricing agreements. Successful B2B companies are built on strong partnerships. Strategic pricing agreements are the foundation of these relationships because they bring predictability and stability. They help build trust, reduce the need for ongoing negotiation, and make purchasing experiences smoother and more efficient. Review existing agreements and talk with your strategic suppliers about sharing some of the tariff pain to avoid passing the entire cost increase on to your customers. A drop in end-user purchases will negatively impact everyone. 

Implement transparent price adjustments. The COVID-19 pandemic taught us that companies have the power to push prices up due to rising costs from supply chain disruption and heightened demand beyond general inflation. Pricing conditions have since normalized, but tariffs are changing the equation again. Decisive actions with a strategic approach will help protect margins and profitability. 

Know your tariff exposure. Not all tariffs will impact companies the same way. Some will see direct cost increases, while others experience indirect price increases via their suppliers. Use the International Trade Commission’s Harmonized Tariff Schedule (HTS) to pinpoint exact tariff rates on materials and analyze product-level risk. Secondary costs may also increase, such as freight, storage and labor costs, so factor that in as well. 

Run tariff impact scenarios and set a pricing strategy. Before taking any action, calculate how tariffs will affect your profitability.  While tariffs are a direct cost increase, a 25% tariff doesn’t necessarily warrant a 25% total cost increase. Weighted cost structures and operational efficiencies will influence the final impact. Use a profit-and-loss model to determine how tariffs will impact your gross margin and net profitability.

Analyze customer behavior and sentiment. Keep up with cost changes and your customers’ take on rising prices by reviewing historical transactions and any other data you may have on customer behavior and sentiment. With this data in one bucket, create another one with your “what-if” scenarios. Predictive analytics and modeling will inform more strategic actions and, because you have hard data at your disposal, you’ll be able to be more transparent during your conversations with customers.

Clearly communicate any adjustments with your customers. Whatever price adjustment is chosen, act swiftly and with transparency. Prime your customers for potential price increases. Explain why the price is changing and when it might reverse. Create a separate line-item on quotes and invoices for a temporary tariff surcharge. Proactive, clear customer communication will keep relationships strong. 

Invest in long-term agility. Buy-side refinements and sell-side price improvements work best when everyone works together. If procurement operates under unfavorable agreements, price adjustments will be less impactful to the bottom line. If no price adjustments are made, no amount of cost-cutting will make your margins. Both teams need to work together, and timely execution is critical. 

In the short term, ensure that your teams are working in lock step. For the long term, invest in technology to fuel smart decision-making and timely execution. The key is to ensure that actions taken during times of disruption aren’t affected by an inability to execute. 

The ability to weather market storms begins with a clear understanding of your scenario. Ask yourself some important questions. Fueled by research and…