Tariffs have been all the rave lately. After “Liberation Day” (April 2nd, 2025), there is a clearer picture, but even that has been shadowed by conflicting observations from experts on whether there will be negotiations or not and what the final picture will look like. Some have even called this a fundamental change in the way business is done across international boundaries going forward. Some say that raw materials will become more expensive, others say this will help sell more products. In brief, there is a lack of clarity and an abundance of uncertainty.
I am putting the question of what will happen or not happen to the side, and dealing with this question: What should companies and supply chain planners do, considering this uncertain situation when it comes to planning their supply chains? Predicting (and planning for) the future is a dicey business in the calmest of business environments. In the current environment, it becomes much more challenging. So, what is a supply chain planner to do?
Well, the way I look at it, there are two main things. In the strategic sense, one can ask the question: Do I reconfigure my network? Are my production facilities in the right place? How about my warehouses? Because depending on the location, the overall cost will go up or down when the tariffs are factored in.
If a company has access to a model for strategic network redesign, they will plug the anticipated tariffs into it and then re-optimize. The output will likely be a very different configuration than the current one. Of course, these changes to the network, if implemented, would be big ticket items. Therefore, a company would want to be very diligent in analyzing the results before pulling the trigger.
A different concern is in the here and now. One already has a network; it cannot be changed overnight. What can be changed is the balance. One might have planned to buy 80% from a country where the purchase cost was low but has suddenly become high because of tariffs. A new plan would move that buying to a different location assuming such option exists and capacity and capability picture at that other location enables it.
The key tool in this situation is “what-if” analysis. Supply chain planners will do well by asking the question:
What if the tariffs are at X%; X+5%; X+10%?
- What will be the impact to my demand in each of these scenarios?
- How will I move the procurement of raw materials around in each of these scenarios?
- How will I move production around in each of these scenarios?
What-if scenario planning will be a key capability to deal with the opportunity presented by the uncertainty of tariffs. The company that deals with it well will leapfrog others and gain market share.
