Tariff Tango: Are Supply Chains Ready?

For a moment last year, it seemed like the supply-chain disruptions of the pandemic were finally resolved. Ground was being broken on the last of the new facilities inspired by COVID-era disturbances, and many firms had emerged from the pandemic with diversified, fairly flexible supply chains. Then came the “T” word.

A survey of 1300 global CEOs finds that they see supply-chain disruption as the number-one threat to growth in the next three years, ahead of operational and cybersecurity risks. That’s especially true, of course, amid the specter of tariffs, whether proposed or implemented. The stakes are enormous for firms, especially those that aren’t a minimum of six months into their tariff-adaptation plans. “It’s better to prepare late for the test than not at all, but you’ve put yourself at a significant disadvantage,” says supply-chain expert Seth Steinberg, senior client partner at Korn Ferry.

To be sure, the pandemic ushered in an era of supplier diversification, in which firms nearshored supply chains or strengthened their resiliency to global shocks, or both. Many firms shifted supply chains out of China and into countries like India, Thailand, and Malaysia, while also moving some operations nearer to customers, where possible. This worked in both directions: Some North American firms opened plants in Europe and Asia, and some European and Asian firms did the inverse. But now managers are unwinding some of those plans to reduce reliance on suppliers from countries affected by tariffs.

Building a basic manufacturing site typically takes 12 to 18 months. More complicated, phased-in, capital-intensive projects might roll out over much of a decade. Chip factories and automotive facilities, for example, are notoriously time-consuming to build and launch. With new tariffs here and others on the horizon, experts expect to see more facilities—both supply chain and manufacturing—crop up close to home. Hopefully, these plans are well underway. “It’s going to be headaches for people who haven’t yet put boots on the ground,” says Erik Olson, lead for Korn Ferry’s Industrial Manufacturing practice.

Despite the tumult, this time around, most supply-chain experts are surprisingly calm. “The tone is, ‘more of the same,’” says Steinberg. “We’ve accepted that we live in a state of permacrisis.” Organizations are focused not just on the costs of working in specific countries, but also on transportation routes—plotting out transportation alternatives if one trade route spikes in price, or if a war shuts down a shipping lane. Still, experts advise that firms focus on costs rather than political shifts. This is harder than it sounds; simply quantifying the impacts of tariffs is complicated by a wide variety of related loopholes, exemptions, and incentives which may or may not apply—or might change. Experts suggest looking at tariffs as another market disruption, and not as a political force. “It’s seeing it as a market dynamic, which de-escalates the emotional impact,” says David Vied, global sector leader for medical devices and diagnostics at Korn Ferry.

And as tariffs stop and start, experts see an opportunity for relationship-building, as shifts open up the chance for extensive conversations with suppliers and customers. Where viable, those business relationships can develop into true partnerships over the next 2 to 4 years, says Jonathan Wildman, senior client partner at Korn Ferry. “Try to stay above the fray,” he says. 

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