Boardrooms are abuzz with meetings to tackle head on the reverberations of country-specific US tariffs on the world and the subsequent retaliatory measures from large global trading partners, such as from Canada, China, the EU, Mexico, etc. These organizations, transcending industries, are all grappling with increased costs, disrupted supply chains, and heightened uncertainty. The automotive sector, for example, is one such industry that is bearing the brunt of the impact. Some large organizations are extremely wary of giving out a revenue outlook forecast. Procurement should take on the baton during these turbulent times and navigate the tariff conundrum with short-term mitigation measures, combining these with efforts aimed at building long-term resilience while driving competitive advantage with sustainable growth.

Tariff Disputes Will Drive Up Cost, Volatility, And Complexity

The immediate impact of the ensuing tariff war is apparent: increases in input costs for US-based firms, counter tariffs levied by other nations, the loss of competitiveness of US exports, and global supply chains in disarray. In essence, the short-term pressure mounts, and the immediate consequences are stark:

  • Financial impact. Businesses face the difficult choice of absorbing higher costs, squeezing profitability, or passing them on to consumers, risking demand elasticity. General Motors, for example, faces billions in potential losses to its earnings forecast, increased costs on imported auto parts, pressure on pricing that would impact demand, and reduced profitability impacting future R&D investments.
  • Supply chain volatility. Tariffs can disrupt established global supply chains, forcing organizations to reduce their dependency on a single country and diversify by seeking alternative sources, often with limited lead time and potentially higher costs and other quality compromises. Adidas, for instance, had to shift its strategy to diversify its sourcing location by moving away from China.
  • Increased administrative burden. Tariff classifications, impact analysis, duty payments, and evolving trade regulations add complexity and administrative overhead, forcing organizations to divert resources away from core business activities. Small and midsized companies with limited resources face the brunt of allocating resources to calculate increased duties and prepare additional documentation for audits, extended scrutiny, and so on.

Short-Term Procurement Measures Focus On The Immediate Impact Of Tariffs

As we have outlined in previous research, in times of volatility and uncertainty, procurement can become the secret weapon. In the short term, procurement leaders should focus on:

  • Rapid cost optimization. Identify immediate cost-saving opportunities through aggressive negotiation with existing strategic, tactical, and niche suppliers; explore value engineering options; and scrutinize non-essential spending. Underperforming suppliers should be put on performance improvement plans. Use Forrester’s Strategic Partnership Assessment Template to identify the correct segmentation of your suppliers. Prioritize the high-impact strategic and tactical suppliers for immediate cost-savings negotiations. Consider also the rationalization of the niche suppliers.
  • Supplier contractual renegotiation. Engage in urgent dialogues with key and niche suppliers to understand the impact of tariffs on their pricing and explore potential cost-sharing or alternative contractual arrangements. Procurement should not wait until the next quarterly business review but instead call for an extraordinary request to come to the negotiating table. Going forward, procurement leaders should have this flexibility to revisit contracts incorporated in their master services agreements and other contracts so as to avoid any resistance from suppliers.
  • Risk assessment and mitigation. Evaluate the immediate risks to the supply chain, identifying vulnerable suppliers and materials and exploring short-term alternative sourcing options, even if they come with compromises. Keep a weekly check-in with the risk team as a priority.
  • Tariff engineering and compliance. Work closely with internal stakeholders such as legal, risk, and trade compliance teams to understand tariff classifications, explore potential exemptions, and ensure continued adherence to evolving regulations.

Long-Term Procurement Strategies Elevate Overall Resilience And Competitive Advantage

While the immediate focus is on damage control, the long-term implications of the evolving trade landscape necessitate a fundamental shift in procurement strategy. In previous research reports, we talked about how procurement should pivot beyond reactive knee-jerk measures to embrace a proactive, strategic approach to build resilience and competitive advantage for the long haul. Procurement leaders need to look beyond the immediate horizon and drive long-term strategic initiatives such as:

  • Supply chain diversification and broader location strategies. The reliance on concentrated global supply chains has made companies more vulnerable to geopolitical disruption. Procurement organizations should diversify their portfolios and enhance agility by exploring broader location strategies, including nearshoring or reshoring production to reduce reliance of sole-sourced providers on tariff-affected regions. For example, as a result of tariffs, Apple is expanding production in India and Vietnam to reduce reliance on Chinese manufacturing. Further, the firm is committing to investing $500 billion in the US over the next four years to mitigate tariff risks and improve responsiveness.
  • Strategic supplier collaboration and strategic sourcing relationships. Procurement should start focusing on supplier relation management and build stronger, more collaborative relationships with strategic partners. This includes deeper visibility into their supply chains, initiating joint risk assessments and collaborative innovation efforts to identify cost efficiencies and alternative materials. Strategic suppliers should be favored for future sourcing projects, and their footprints should show an increasing trend.
  • Supplier value management (SVM) technology adoption. Procurement should leverage SVM technology for enhanced supply chain visibility and predictive analytics for demand forecasting. AI-powered procurement processes will be crucial for navigating complexity and making informed decisions in the dynamic trade environment while automating operational procurement. Digital procurement platforms streamline processes, enhance data visibility, and enable real-time decision-making.
  • Cross-functional collaboration within the company. Procurement must work more closely with other functions, including finance, sales, risk, supply chain, operations, and legal, to develop holistic strategies that align sourcing decisions with overall business objectives and risk tolerance.

The opportunity at hand is to enhance procurement’s image and positioning within organizations exponentially. Procurement should not waste this moment to shrug off its cost-cutting image by developing long-term sourcing strategies that help move the needle. It needs to keep supplier relationship management as a key focus of procurement roles, prioritizing innovation and mutual value creation. For black-swan events, procurement should proactively identify and mitigate supply chain disruptions by scenario planning and developing contingency plans for alternative sourcing strategies. Technology adoption will help procurement professionals gain deeper insights in real time to enable more informed sourcing decisions.

By implementing the short-term measures and long-term strategies outlined above, C-level execs can support procurement in building a resilient framework that mitigates risks while driving sustainable growth and competitive advantage.

I look forward to hearing your feedback on this blog. Please feel free to book a guidance session with me to discuss this further. Also, check out this trend report providing more advice on how to thrive through volatility. I wish to thank Forrester Research Associate Lorenzo Annicchiarico for his contributions to this blog.