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In response to a new environment of massively increased import tariffs, U.S. businesses must adopt strategies that go beyond either absorbing new costs or passing them on to customers, according to analyst firm Gartner, Inc.
Chief supply chain officers should be projecting ahead to potential counter-measures, escalations and de-escalations as part of their current scenario planning activities, according to a report released January 28, Supply Chain Disruption: Key Strategies for CSCOs to Respond. But the risks of acting too early to proposed tariffs and anticipated countermeasures by trading partners are as acute as acting too late, the analysts said.
“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.
Gartner has identified five “pathways” that will help CSCOs and their organizations manage tariff volatility. Businesses that can reinvent or reinvigorate their operations stand the best chance of driving new competitive advantage from ongoing tariff volatility, the report argues.
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. Businesses should assess the costs associated with adjusting the product to maintain viability, or accept that they may have to retire the product.
Renovate. New tariffs could help prompt adjustments to products that were already 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 an ongoing price-sensitive environment. These decisions should be made with consideration of how critical the product is to the enterprise’s portfolio.
Rebalance. Early winners and losers from initial tariff policies must be prepared for potential countermeasures, policy escalations and de-escalations, but also responses from competitors. Early changes should not automatically be accepted as the new normal, and businesses must build additional volatility into future demand planning.
Reinvent. As the new range of tariffs unfolds, 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.
Reinvigorate: Businesses could gain an early advantage by seeking opportunities to extend competitive advantages. For example, they could look to expand existing U.S.-based or domestic manufacturing capacity, or reposition themselves within the market by lowering their prices to take market share and drive business growth.
“Enterprises should recognize tariff volatility as a multiyear, dynamic event,” said Suzie Petrusic, senior director analyst in Gartner’s Supply Chain practice. “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."
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