By utilizing AI-driven analytics to anticipate and agentic AI to respond to potential disruptions, enterprises can minimize the impact of tariffs, protect their revenue streams, and build more resilient operations.
What started as discussions of imposed tariffs on Mexico and Canada back in February escalated to an increase in tariffs on U.S.'s trading partners by early April. A few short days later, most of those were reduced or wholly rejected, with the exception of a 125% tariff put on Chinese goods that was received with statements of retaliation...except for technology.
In short, the supply chain is entering a very unstable stretch and that's important to pay attention to, given the average disruption in 2024 had a ripple effect that could cost $1.5 million per day.
The world economy is intricately interconnected, and even slight or seemingly temporary changes in trade policy can have cascading effects on production, cost structures, and revenue. As tariffs, potential trade wars and other rapidly shifting economic factors continue to reshape international trade, companies must act quickly to identify vulnerabilities within their supply chains and protect themselves from potential disruptions.
To stay ahead of the curve, businesses must be equipped with tools that allow them to anticipate and respond to supply chain risks in real time. Agentic AI solutions with the ability to analyze data in real-time, recommend next best actions, and take action in line with a company's priorities and tolerances have already proven to be a game-changer for those seeking to build more resilient and adaptive supply chains.
Tariffs have become one of the most disruptive forces in international trade. These taxes on imports (or exports, depending on your point of view) can increase the cost of goods and services, disrupt established trade flows, and strain the delicate balance businesses must maintain between sourcing, production, and delivery -- completely changing how supply chains function. For evidence, look no further than the rise of nearshoring, which resulted from the combination of the COVID-19 pandemic and imposed tariffs on China. Few enterprises are reliant entirely on U.S.-based goods, but even those that are still face significant risk as their suppliers may utilize global sources. Even fully local resources are at risk of being stretched thin as more companies pivot away from international sources due to higher costs.
The uncertainty surrounding tariffs makes it especially difficult for businesses to anticipate the true cost of a disruption, but one estimate sets it at $184 million annually. As governments around the world continue to revise trade policies and implement tariffs, organizations find themselves scrambling to assess how these changes could affect their suppliers and, in turn, their bottom lines. With the volatility of trade policies, it is crucial for companies to identify which suppliers are most at risk and what their options are for reducing those risks.
The traditional methods of managing supply chain risk -- reactive responses after a disruption occurs -- are no longer sufficient in today's fast-moving, globalized marketplace. Enterprises must adopt a more proactive approach to risk mitigation. This includes taking steps to identify potential disruptions before they happen and devising resilience plans that can minimize their impact on business performance, which all require real-time data.
One of the first steps businesses should take is assessing the vulnerabilities of their current suppliers. For many organizations, it can be difficult to pinpoint which suppliers are most likely to be affected by tariffs and other trade-related disruptions. Understanding which suppliers face the highest risk, based on factors like their location, reliance on their own international sources, and the specific goods and services impacted by tariffs, is crucial.
Once this risk is identified, enterprises can implement resilience plans to appropriately address these concerns. Increasing contingency inventory levels, for example, can help buffer against disruptions caused by delays in the supply chain. Establishing redundant onshore sources of supply is another strategy that can reduce reliance on vulnerable suppliers and create a more flexible supply chain that is less susceptible to external shocks. Additionally, increasing the ease and speed of adjustment in risk measures and thresholds can help enterprises stay ahead of changes in market conditions and trade policies, allowing for faster and more effective responses. Automating these processes not only makes them more effective and efficient but also saves time for employees to focus more on making critical business decisions.
While traditional risk monitoring systems provide valuable data, they often lack the speed and agility needed to react to rapidly changing market conditions. In contrast, AI-driven analytics have the capability to refine vast amounts of unstructured data, providing early warnings of potential disruptions before they escalate into full-blown crises.
AI is increasingly being used to analyze complex, unstructured data sets -- such as market trends, trade regulations, and supplier performance metrics -- to identify risks in real time. These AI systems are capable of sifting through vast amounts of unstructured data, such as news articles, financial reports, and trade movements, to detect early warning signs of potential supply chain disruptions. This helps enterprises identify at-risk suppliers before they are directly impacted, allowing for more informed decision-making.
Additionally, Agentic AI can provide companies with tailored solutions to mitigate these risks, offering resilience recommendations to adjust their operations, inventory levels, and supplier relationships accordingly. In some cases, AI systems can even auto-act to resolve risks autonomously, by suggesting new suppliers, altering production schedules, or modifying procurement strategies.
AI-driven analytics solutions are able to process far more data than traditional systems, which means businesses can stay ahead of potential disruptions. Not only does this save time and resources but it also reduces the likelihood of revenue loss due to unexpected supply chain interruptions.
To protect themselves from tariff-related disruptions, businesses should consider implementing the following strategies and ensure AI tools are part of their process:
● Enhanced supplier risk assessment: Conduct a thorough risk assessment of all suppliers to understand their potential vulnerability to tariffs and trade disruptions. Factor in the geographic location of suppliers, the goods and services affected by tariffs, and their financial health. AI-powered analytics can help quickly identify at-risk suppliers and model potential impacts on the business.
● Increase contingency inventory: One of the most effective ways to mitigate supply chain risks is to increase contingency inventory. By stocking additional inventory in advance of potential disruptions, companies can maintain operations even if suppliers face delays or increased costs due to tariffs. However, this strategy requires capital, careful planning, and forecasting to ensure that inventory levels remain aligned with risk, revenue impact, and demand.
● Diversify supply sources: Businesses should seek to diversify their supply sources to reduce reliance on suppliers in regions that may be heavily impacted by tariffs. Establishing redundant, onshore supply chains -- especially for critical goods -- can create a more resilient and flexible system that is less vulnerable to external shocks.
● Automate monitoring: To stay ahead of potential disruptions, enterprises need to automate the processes around monitoring and analysis of their supply chain performance. AI systems can be used to continuously track supplier performance, regulatory changes, and emerging risks, enabling them to take action before problems arise.
● Leverage AI for predictive analytics: AI-powered systems can be used to forecast the potential impact of tariff changes, labor strikes, or transportation delays. By leveraging machine learning algorithms, companies can better predict disruptions and model different scenarios to determine the best course of action.
● Automate resolution: Once a risk is detected, agentic AI can ensure resilience plans are put in place and acted on.
As economic decisions continue to see-saw, creating an incredibly challenging global trade landscape, businesses must recognize the need for proactive risk management strategies to safeguard their supply chains. By utilizing AI-driven analytics to anticipate and agentic AI to respond to potential disruptions, enterprises can minimize the impact of tariffs, protect their revenue streams, and build more resilient operations. Implementing key strategies such as enhanced risk assessments, contingency inventory planning, and supply chain diversification will help ensure that businesses remain competitive and agile in the face of future trade challenges.