Build Supply Chain Responsiveness for Tariff Volatility

Organizations must prioritize building responsive supply chains in today's volatile global economy to navigate trade tensions and fluctuating tariffs. This requires a multifaceted approach that encompasses strategic awareness, proactive mitigation planning and continuous adaptation.

Tariffs will be a significant catalyst for reconfiguring the supply chain, but Gartner’s 2025 Tariff Volatility Survey tells us that 79% of surveyed CSCOs feel equipped to deal with today’s emerging trade environment. However, specific sectors, such as U.S. hospital systems, may face challenges due to reliance on products manufactured in Mexico and difficulties in cost pass-through.

To understand why CSCOs generally feel equipped to deal with tariff volatility, look towards how their recent network relocations help them mitigate geopolitical and trade risks.

In 2024, S.E. Asia, India and the U.S. emerged as top destinations for relocated operations. This trend continues in 2025, with CSCOs surveyed by Gartner identifying all three of these places as emerging bright spots for increasing manufacturing capacity.

While CSCOs may feel equipped to deal with tariff volatility, recently signed executive orders may expose the community to significantly increased tariff risk. Reciprocal tariffs based on a country’s value added tax (VAT) scheme would potentially widen the tariff risk to include over 160 countries.

If and when tariffs increase, organizations must determine how much of the cost to absorb and how much to pass on to the consumer. About 35% of CSCOs told us they intend to pass on 20% or less of the tariff increase to their customers. We’ve heard this group is employing cash conservation strategies as a mitigating action.

Overall, when it comes to passing along tariff increases to customers, the majority are mostly all or nothing, with about one third splitting the difference.

Agility is also paramount in this volatile environment. Survey results indicate that almost half of the CSCO community (across industries) believe they can regionalize 25% of their supply chain capacity within 12 months. This is a solid indication that supply chains are becoming more agile and responsive.

Over the years, we’ve provided guidance to our CSCOs on a wide range of actions to help make the networks more resilient and agile to geopolitical and trade tension, and they’ve taken our advice.

So, what are we saying about the current environment, given the increased tensions? The same things: 

• Playbook Updates: Review and update existing playbooks to address tariffs, labor shortages and inflation.
• Enhanced Agility: Prioritize agility within the supply network to ensure responsiveness to unforeseen disruptions.
• Risk Mitigation: Implement measures to mitigate risk through supplier diversification, nearshoring or investments in risk management technologies.
• Government Engagement: Engage in governmental affairs to stay informed about policy changes and advocate for policies that support supply chain stability.
• Scenario Planning: Conduct continuous scenario planning to prepare for a range of potential disruptions and uncertainties.
• Process Optimization: Strengthen and streamline supply chain processes, particularly sales and operations planning (S&OP).
• Growth Prioritization: Align supply chain strategies with overall organizational growth objectives.
• Cost Management: Continuously seek opportunities to optimize costs and improve efficiency throughout the supply chain.
• Strategic Patience: Avoid impulsive reactions to trade and tariff changes, allowing for a more informed and measured response.

Sorry to say this, but it depends. It would be great if we could predict that all companies that move to India will experience a simple lift and shift. Some might, but others will experience the still-maturing industrial infrastructure and port capacity.

Shifting to S.E. Asia could be the right move, and it has been for many so far. However, geopolitical shifts could overrun supply chain efficiencies in a very abrupt way.

What about the “factory of the world”? China will retain significant sway in global supply chains and raw materials in the coming years. Could it be possible that China-based supply chains have some advantage over other regions due to average tariff rates? Perhaps so.

Once again, cost to serve will become a critical supply chain analytical tool. Understanding the through line from supply to customer has never been more important. The field will remain volatile, and instability will be the baseline scenario. But in a way, this is reassuring news because we know what to expect.  


Wade L. McDaniel
VP Distinguished Advisor
Gartner Supply Chain
wade.mcdaniel@gartner.com

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