Tariff-Proofing Your Supply Chain: 4 Practical Strategies for TPRM

Introduction: When Trade Policy Hits Closer Than Expected

Tariffs often make headlines in the business section of the news. They’re discussed in the context of global negotiations, economic strategy, or national competitiveness. However, tariffs aren’t just abstract concepts for companies managing vendor contracts, logistics timelines, and service-level agreements. Changes in trade policy, particularly the introduction or expansion of tariffs, can significantly alter markets and increase various types of risks, including financial, operational, reputational, and strategic risks. Tariffs can disrupt commodity prices and impact the performance and reliability of your vendors.

Vendors typically experience the effects of tariff changes first, and their challenges can create difficulties for your organization. This often begins with subtle signs, such as altered delivery timelines or unexpected price increases, which indicate larger tariff-related issues. For businesses that rely on third-party services, adapting to these changes demands vigilance and flexibility, as tariff impacts can unexpectedly alter operations.

To build an effective third-party risk management program, it’s essential to identify early signals of change, model potential fallout, and adapt accordingly. 

From Tariffs to Turbulence: The Vendor Impact

When tariffs are introduced or increased, vendors face a tough decision: They must either absorb the additional costs or modify their operations. Most vendors cannot sustain absorbing these costs for long, so they typically opt for the latter. While adjusting can help them survive, it often creates new challenges for the companies that rely on them.

The effects of tariffs typically fall into two categories: increased costs and operational issues. Let’s examine these effects.

Increased Costs: The Financial Chain Reaction

Even when service remains intact, tariffs have financial implications that extend beyond the vendor’s books. They can directly impact your organization’s operating expenses and revenue.

• Vendors may adjust pricing mid-contract to remain solvent.
• You may be asked to share in increased duties or logistics fees.
• Transitioning to alternate suppliers or nearshoring can create new or increased onboarding, legal, and performance management costs.
• Budget instability caused by unpredictable tariff timing may delay your own project delivery or client commitments.

When vendor margins are squeezed long-term, their ability to invest in innovation, security, and resilience often diminishes, compounding risk over time.

Operational Disruptions: How Vendors Adapt to Tariff Pressure

Tariffs can significantly increase the cost of doing business for vendors, particularly those that import raw materials, components, or finished goods. To offset these costs, vendors often make changes that affect their performance.

Workforce Reductions

Labor is often the first lever vendors pull to offset increased costs:

• Staff cuts lead to delayed service delivery or missed SLAs.
• Reduced support teams create longer resolution times for issues.
• Less internal oversight increases the risk of missed compliance obligations.

Shifts in Production and Delivery

To avoid tariffed imports, vendors may reroute production or sourcing:

• Facility closures in tariff-affected countries create service interruptions.
• Alternate shipping routes lead to longer transit times.
• New logistics networks could introduce unfamiliar fourth- and nth-tier providers, each representing a new risk.

Lost Expertise and Transition Gaps

Workforce changes and restructuring can result in:

• Loss of institutional knowledge, affecting service continuity.
• New account contacts that are unfamiliar with your operations or expectations.
• Increased onboarding time when switching or diversifying vendors.

Risk of Shortcuts

Vendors under pressure may prioritize speed or cost over quality:

• Security patches, QA testing, or incident response may be delayed.
• Subcontracting increases without proper vetting.
• Reduced control adherence raises the risk of regulatory violations.

‍

Building Resilience in a Tariff-Driven Economy

Organizations can’t control tariff decisions, but they can control how ready they are for their impact. These four practices can help build a third-party risk strategy that’s both responsive and resilient.

1. Map Your Supply Chain for Tariff Exposure

Visibility is the first defense against disruption.

Many companies have a clear picture of their direct vendors, but fewer can identify where they source their materials or manufacture their products. That lack of visibility becomes a blind spot when tariffs are imposed on a specific country or product category.

To mitigate this risk:

• Create a supply chain map beyond Tier 1 vendors, including sub-vendors and critical inputs.
• Highlight geographic dependencies, especially in regions historically affected by trade shifts or geopolitical tensions.
• Layer in industry-specific tariffs (e.g., semiconductors, rare earth metals, agricultural inputs) to understand exposure by sector.

Example: If a vendor providing critical hardware components relies on aluminum parts sourced from a country newly impacted by tariffs, your organization could face rising costs and fulfillment delays. Mapping that dependency ahead of time allows you to prepare contingency plans before the disruption reaches your production line

2. Establish a Foundation for Scenario Planning

Tariffs don’t always arrive with a warning. A new policy, an amended trade agreement, or a fast-moving political decision can change your risk posture overnight. The most resilient organizations prepare in advance by running “what-if” scenarios tied specifically to tariff impacts.

To build readiness:

• Conduct stress tests that explore vendor performance under various tariff models (e.g., what if a 20% duty is added to imported hardware?).
• Segment vendors by criticality and tariff sensitivity, so you know where to act quickly and where you have flexibility.
• Tie these exercises to your business continuity and procurement playbooks, ensuring alignment across legal, finance, and operations.

Example: A scenario plan may reveal that a single vendor provides a critical component with no ready-to-go alternative. Knowing that in advance gives you time to qualify backups, diversify, or renegotiate before a crisis hits.

3. Monitor Continuously with Real-Time Intelligence

Tariff risk isn’t static. Policy changes are often reactive, fast-moving, and layered. A one-time vendor assessment doesn’t cut it anymore. The key is building systems that track and respond to risk in real time.

To stay ahead:

• Monitor vendor performance metrics for early warning signs—missed deliveries, customer complaints, pricing volatility.
• Use tools that track tariff announcements, trade policy shifts, and country-specific developments.
• Integrate external data feeds (e.g., global trade alerts, economic indicators, logistics movements) into dashboards that tie directly to your third-party risk platform.

Example: A sudden tariff increase on lithium-ion batteries may not affect your company directly, but if your vendor’s supplier uses those batteries in an essential device, your SLA performance is still at risk. Ongoing monitoring helps you detect that indirect exposure early.

4. Build Strategic Flexibility into Contracts and Relationships

Flexibility isn’t a luxury in a tariff-sensitive environment; it’s a necessity. Vendor agreements must evolve to accommodate rapid change, and your vendor portfolio should be designed with agility in mind.

To create that flexibility:

• Update contract language to allow for renegotiation in the event of tariff increases or material cost changes.
• Include early termination clauses, offboarding requirements, and shared cost models for managing sudden changes.
• Maintain a bench of pre-vetted alternative vendors across critical service areas, and test switching protocols before they’re needed.
• Develop proactive and realistic offboarding plans for vendors that might need to be cut.
• Foster strong vendor relationships: Collaboration often leads to better outcomes during times of disruption.

Example: A vendor caught off guard by your response to a tariff-induced price increase may be less cooperative. Conversely, a partner involved in scenario planning and contract discussions is more apt to collaborate on necessary pricing or performance changes. 

Conclusion: Resilience Starts with Recognition

Tariffs may be external, but their impact is internal. They change the economics of your supply chain and the reliability of your vendor relationships. In today’s trade environment, resilience isn’t about predicting the next move; it’s about preparing for what comes next.

By recognizing tariffs as a key driver of third-party risk, not just a background economic factor, you can evolve your TPRM strategy to meet the moment. Map smarter. Plan better. Monitor continuously. And above all, stay ready to adapt.

‍