Navigating Tariff Uncertainty: Scenario Planning for CSCOs

As disruptive U.S. tariff changes continue, chief supply chain officers (CSCOs) must leverage scenario planning to navigate uncertainty.

Turn historic tariff challenges into opportunities

As tariff changes and countermeasures rock the current trade environment, CSCOs are confronted with challenges not seen in over half a century. This unprecedented scale of change introduces significant uncertainty to supply chain product flows, requiring CSCOs to adopt innovative and strategic responses. By exploring strategies beyond absorbing tariff costs or simply passing them on to customers, CSCOs can transform these challenges into opportunities for growth and resilience.

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    Strategic scenario planning for navigating tariff volatility

    Amid ongoing tariff changes, CSCOs must assess how prepared their organization is to adapt — not only to maintain competitiveness but to drive competitive advantage. Scenario planning offers a pathway to identify risks and opportunities across demand, supply and market dynamics and evaluate how geopolitical actors might respond — all while prioritizing actions to protect the supply chain.

    Geopolitical response

    In this volatile geopolitical environment, scenario planning for a long-term strategic response is extremely complex, as uncertainty can trigger a wide range of actions from many different actors. To manage this complexity, start by focusing on your most critical products, markets, customers and channels. Then assess the possible actions geopolitical actors might take in response to tariffs, considering only those actions relevant to the critical areas you have identified.

    Demand-side and supply-side risks and opportunities

    Once you have identified the actions geopolitical actors might take that could affect your customers and suppliers, assess how these customers and suppliers are likely to respond. Evaluate their potential responses by considering how critical the strategic product, market or channel is to their business, as well as the elasticity of demand. Understanding these responses will help you identify related risks and opportunities on both the demand and supply sides.

    Customer and supplier responses may include these actions:

    Retire. Enterprises discontinue products due to tariff-induced financial strain and lack of viable mitigation options.

    Renovate. Companies assess whether small adjustments and passing on tariff costs can sustain a product’s viability.

    Rebalance. Businesses absorb costs and invest strategically to either benefit from or mitigate the impact of tariffs — all in an effort to maintain profitability.

    Reinvent. Enterprises transform operations, relying on their own investments and cost-sharing with competitors, ecosystems or geopolitical actors.

    Reinvigorate. Companies unaffected by tariffs can capitalize on their competitive edge and leverage cost-sharing with competitors, ecosystems or geopolitical actors to expand and strengthen market presence.

    Market risks and opportunities

    Evaluating demand- and supply-side risks and opportunities helps you anticipate how competitors might respond, as well as the resulting market risks and opportunities. Assess what your competitors are likely to do based on the elasticity of demand and the importance of the product, market or channel to their business. Identifying these risks and opportunities will give you greater clarity on what events will trigger the supply chain to take action and how to prioritize those actions.

    This approach allows you to answer three key questions about your competitors:

    • How likely are they to change their strategy?

    • How likely are they to compete against you rather than collaborate with you?

    • How likely are they to pivot and achieve success more effectively than your organization?

    The highest competitive risk to your organization lies in where the answer to all three of these questions is “very.” Developing your response strategy is of the highest urgency. Beyond that, urgency is driven by your organization’s ability to outpace your competitors where you are better positioned to gain from the volatility. 

    Supply chain tariff volatility FAQs

    Can CSCOs turn tariff volatility into a competitive advantage?

    CSCOs willing to embrace change and think strategically can use tariff volatility to work with their C-suite partners to rethink and define their organization’s place in the market. By turning risk into reward, they can not only survive the tariff turbulence but attempt to thrive in it, emerging stronger and more competitive than before.

    What actions can CSCOs take amid tariff volatility and economic uncertainty?

    Amid economic uncertainty, CSCOs should reassess competitive positions for new opportunities, manage costs and evolve supply chain networks to drive impactful business outcomes. CSCOs can assess market opportunities by determining their competitive wedge point — the intersection of their own differentiating capabilities, customer needs and competitor disadvantages. To align cost reduction efforts with strategic priorities, CSCOs must understand how market conditions affect cost to serve and invest in technologies that enhance supply chain efficiency. Rather than pursue a one-size-fits-all approach, organizations can strategically reshape their networks in response to country-specific incentives, government policies and the need to diversify away from concentrated risk in order to better manage disruptions.

    How can CSCOs build resilience into the supply chain to improve risk response?

    CSCOs can build supply chain resilience by prioritizing risks and aligning their strategies with overall corporate objectives. CSCOs must proactively protect the parts of the supply chain that will enable achievement of the future enterprise strategy, while also working with their C-suite and enterprise partners to create alignment on what is most critical for the business today. To create strategic and budgetary alignment, enable stakeholders to decide on the mitigations they want to pay for. If risk management is siloed within and from the supply chain, establish a cross-functional risk council to oversee supply chain risk and management activities and contribute to risk reporting.

    Drive stronger performance on your mission-critical priorities.