Gartner Says Supply Chain Organizations Can Use Tariff Volatility to Drive Competitive Advantage
Chief Supply Chain Officers Have Five Possible Pathways to Evaluate When Faced with New Tariff Policy Changes
In the face of the most significant tariff changes proposed in the past 50 years, enterprises must be prepared to make strategic responses that go beyond either absorbing new costs or passing them on to customers, according to Gartner, Inc.
“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."
Gartner experts said the risks of acting too early to proposed tariffs and anticipated countermeasures by trading partners are as acute as acting too late. CSCOs should be projecting ahead to potential countermeasures, escalations and de-escalations as part of their current scenario planning activities.
“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,” said Whitlock. “In almost all cases, this will require material business investment and should be a focal point of current scenario planning.”
Gartner has identified five pathways to manage tariff volatility that enterprises must evaluate when calibrating their competitive responses, in line with their own distinct operating realities. Among the pathways, enterprises that can reinvent or reinvigorate their operations stand the best chance of driving new competitive advantage from ongoing tariff volatility (see Figure 1).
Figure 1: Five Pathways to Respond to Tariff Volatility
Five possible pathways for CSCOs and other executive leaders to consider when faced with new tariff policy changes include:
Retire: Tariff volatility will stress some specific products, or even organizations, to a breaking point. Passing on costs to customers or absorbing them may not be viable. 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.
Renovate: New tariffs could prompt renovations (adjustments) to products that were overdue. In other cases, CSCOs and their business partners will need to take a hard look at the viability of raising or absorbing costs in a still price-sensitive environment. These decisions should be determined in the context of how critical the product is to the enterprise’s portfolio.
Rebalance: Early winners and losers from initial tariff policies must both be prepared for potential countermeasures, policy escalations and de-escalations, and competitor responses. Early deviations from the baseline should not automatically be accepted as the new normal, and additional volatility should be factored into future demand planning.
Reinvent: As tariff volatility persists, companies should evaluate opportunities to invest in new projects in markets that are not impacted or that potentially align with new geopolitical incentives. In other cases, the opportunity to pivot and repurpose existing facilities to serve local markets may emerge. 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.
Reinvigorate: Early winners of announced tariffs should seek opportunities to extend competitive advantages. For example, they could look to expand existing US-based or domestic manufacturing capacity or reposition themselves within the market by lowering their prices to take market share and drive business growth. If executive leaders can entice ecosystem partners or other major actors to support or invest in their efforts, these benefits could be further solidified.
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