Navigating supply chain risk in a world of escalating tariffs

The global trade landscape is shifting following the introduction of trade tariffs and counter-tariffs, potentially altering longstanding relationships as businesses seek to optimise their costs and reorganise their relationships with suppliers and customers in more favourable jurisdictions.

This adjustment to supply and distribution chains creates new challenges in terms of maintaining ethical and legal relationships. Optimising for cost and efficiency is crucial, but in their rush to reorganise businesses should not lose sight of their corporate responsibilities. Ensuring the integrity and operational stability of new partners should remain a cornerstone of decision-making.

What are the risks?

As tariffs reshape global trade, businesses may find themselves needing to rapidly form new relationships with suppliers and distributors from less familiar regions (or revisiting older suppliers which were previously less attractive to the business, from a risk or cost point of view). This presents a significant challenge for due diligence processes, in particular if they have no prior experience of the jurisdiction and its particular risks. Vetting new suppliers thoroughly also creates new administrative burden – which requires time, resource, and expertise to properly address – and the pressure to adapt quickly can tempt businesses to cut corners, potentially exposing them to significant risks.

Businesses should also be alert to whether their established suppliers are also making changes to their relationships to secure cost-effective supplies, in particular where this may create new upstream supply risks (including, for example, exposure to jurisdictions presenting a higher risk of modern slavery, poor environmental controls, or the use of conflict zone materials). Businesses should evaluate the robustness of their third-party risk management and relationship mapping processes to ensure they can identify and assess these risks on a rolling basis, not just when they first take on a direct supplier relationship.

Neglecting due diligence in the rush to find new suppliers also creates a risk that the relationship may need to be terminated at short notice should significant legal risks emerge. Abrupt disruption can lead to production delays, compromised quality, and contractual disputes. This might ultimately adversely impact the company’s bottom line, client relationships, and market reputation.

Navigating the challenges

Maintaining robust due diligence during periods of rapid supply chain transformation requires a proactive and strategic approach. Here are some key considerations:

• Prioritising Integrity: a modern business should consider making ethical sourcing and due diligence non-negotiable, which would mean integrating these principles into every stage of the supply chain.
• Investing in Technology: utilise technology to enhance due diligence processes. Supply chain mapping tools, data analytics, and artificial intelligence can help businesses identify potential risks, track supplier performance, and ensure compliance.
• Collaboration and Transparency: foster open communication and collaboration with suppliers, industry partners, and NGOs. Sharing information and best practices can help raise standards across the entire supply chain.
• Independent Audits: conduct regular independent audits of key suppliers to verify compliance with your standards. This provides an objective assessment of supplier practices and helps identify areas for improvement.

You can also work to future-proof your operations with proactive contingency planning: develop a rapid response plan to address potential supply chain disruptions. This might include identifying alternative suppliers, diversifying sourcing regions, and establishing buffer stocks.

The long view

While adapting to a tariff-driven world presents challenges, it also offers an opportunity to build more resilient, sustainable, and ethical supply chains. By prioritising integrity and investing in robust due diligence, businesses can not only optimise their processes to save costs, but also mitigate risk, protect their reputation and operations, and contribute to a more just and sustainable global economy. In the long run, integrity is not just the right thing to do; it's also good for business.

For more information on how Deloitte can support you with building and running a modern Integrity Due Diligence compliance framework, please contact Jorge Rivera (jorrivera@deloitte.co.uk) in our Corporate Intelligence Services team.