Supply Chain Resilience
Tariff Risk Management Strategies
In looking to address tariff risk exposure, companies have several strategies at their disposal, each with different use cases and impacts. However, the core challenge remains the same—tariffs drive up the cost of goods, forcing businesses to either absorb lower margins or pass along higher prices to increasingly price-sensitive consumers.
As a result, any strategy employed must focus on two key objectives: reducing tariff exposure and minimizing the overall impact of higher tariffs on operations.
To determine the right approach, companies must first develop a clear thesis on potential tariff scenarios, time horizons, impact evaluation metrics, and how these factors specifically affect their business and customers.
Tariff Avoidance vs Tariff Mitigation
Once a business understands where and how tariffs could impact its operations, it can begin the process of proactively managing their tariff risk. Businesses should look to employ a mix of tariff avoidance and impact mitigation strategies.
Tariff Avoidance: Supply Chain Diversification
While most companies will use a mix of the above strategies, supply chain diversification remains the most effective long-term solution for those with a medium to long-term outlook.
By expanding their supply base across multiple markets, businesses not only reduce their exposure to trade policy risks in high-risk regions like China but also mitigate single-supplier dependency, a common occurrence for companies that have sourced from China for decades.
Companies that successfully diversify their supply chains routinely experience:
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1-3% Improvement in EBITDA
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5%Reduction in Inventory
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10% Reduction in Annual CapEx
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30% Increase in Customer Satisfaction
Accelerating Shift Away from China
Even as President Trump’s second term has introduced a wave of new tariff hikes prompting some reluctant businesses to reassess their reliance on China, many industry leaders have already been diversifying their supply chains into emerging markets for years.
Looking ahead, the consensus across industries—from automotive to consumer goods—is that this shift will only continue to accelerate.
Recent trade data from the St. Louis Federal Reserve shows a clear shift in production away from China since 2016, with companies favoring alternative markets in Asia and, to a lesser extent, Mexico. However, with new tariff threats on Mexico, businesses are now questioning the viability of nearshoring, driving renewed interest in emerging markets such as India, Vietnam, and Indonesia.
Despite many industry leaders successfully reducing their China exposure over the past decade, smaller and mid-size firms are only now beginning to explore these markets to mitigate tariff risks.
Source: St Louis Federal Reserve
How to Begin Your Diversification Journey
With China’s long-established supply base for finished goods and components, a highly transactional business culture, and world-class infrastructure, the prospect of entering emerging markets can feel daunting.
While the path to diversification is complex and sometimes challenging, the benefits are significant—and companies of all sizes are successfully capitalizing on them. Click below to explore common pitfalls should avoid on your diversification journey.
Frequently asked questions
What is Supply Chain Management as a Services (SCMaaS)?
SCMaaS is an asset-light model offering scalable, tailored supply chain staffing and advisory services across multiple foreign markets, ready for immediate implementation and requiring no capital expenditure.
How does SCMaaS help my business?
SCMaaS offers tailored benefits based on client size, growth stage, and strategic goals. Common advantages include: enhancing supply chain visibility with near real-time data, driving supplier improvement initiatives, accelerating new product development, opening new foreign markets, implementing Standard Operating Procedures to support scaling, and alleviating domestic bandwidth constraints.
Can SCMaaS integrate into our existing business processes?
Yes, our SCMaaS model seamlessly integrates with your current workflows and SOPs, ensuring minimal ramp-up time and a smooth transition for your supply chain team. Additionally, SCMaaS staffing resources can complement your existing foreign team, helping you expand capabilities without the need for direct hires.
What is the cost associated with SCMaaS?
SCMaaS costs are based on the number of personnel a client uses, the number of markets covered, and the complexity of their supply chain operations. While costs vary depending on the client, our clients typically experience SCMaaS costs that are 20-30% lower than traditional asset-heavy models, such as operating a foreign sourcing office.
Moreover, the enhanced supply chain performance associated with our SCMaaS model often results in significantly greater savings beyond the initial cost reduction.
How can I start with SCMaaS?
Your supply chain is the lifeblood of your business, and we take that responsibility seriously. To learn more about SCMaaS and how to get started, contact us to schedule a consultation where we’ll get a better understanding of your supply chain goals and needs.