Collaboration Can Transform Tariff Challenges Into Supply Chain Optimization

By focusing on supply chain optimization and investing in strategic partnerships, foodservice equipment and supplies dealers can reduce the potential impacts of higher tariffs.

Chad Autry, Myers Distinguished Professor of Supply Chain Management, University of Tennessee, Knoxville

By Bridget McCrea and Tim O'Connor

Managing frequent pivots is never easy in the foodservice equipment and supplies industry, where distributors and manufacturers have faced more than their fair share of uncertainty and disruption over the last few years. While many have become skilled at responding to unforeseen crises or product shortages, the growing threat of trade wars and rising tariffs introduce entirely new challenges. Though tariffs are not a novel concept, the prospect of goods and materials from traditionally friendly trading partners, such as Canada and Mexico, facing steep duties has some manufacturers, distributors and their customers scrambling to adjust.

Since January, the term “tariff whiplash” has been thrown around a lot as the new presidential administration decides which countries and goods should face higher import costs. Retaliatory tariffs from the European Union and other regions of the world have also emerged, further complicating the situation for U.S. companies.

As organizations sort through this situation and assess their global supply chains, many are discovering opportunities in the chaos. One option some manufacturers are considering is reshoring (bringing manufacturing and services back to a company’s home country) or nearshoring (moving business operations or sourcing materials to nearby countries). Reshoring has already been on the rise in the United States over the past 15 years, growing from 10,868 job announcements tied to reshoring in 2010 to 287,299 new jobs in 2023, according to data from the Reshoring Initiative. That could accelerate even further as manufacturers consider moving production stateside with the hopes of avoiding rising tariffs.

While relocating manufacturing facilities is itself a substantial investment, companies that do so may find there are advantages beyond sidestepping tariffs. The closer proximity to customers can make supply chains more flexible and responsive, making new partnerships between suppliers and dealers possible. “Tariffs and their associated cost increases create opportunities for companies to rethink their supply chains to create long-term resilience,” says Chad Autry, Myers distinguished professor of supply chain management at the University of Tennessee, Knoxville.

For dealers, that can mean exploring alternative sourcing strategies that reduce their dependence on foreign suppliers or enable them to take advantage of non-tariffed trade routes. Investing in automation, where appropriate, can also mitigate labor costs and offset procurement increases. “By proactively adapting, businesses can use this as a moment to gain a competitive advantage rather than simply reacting to market changes and becoming single-minded or preoccupied with cost control,” Autry adds.

Valuing Collaborative Partnerships

For the past year, Autry has been working with the FEDA Future of Distribution Council (FDC), a group composed of dealers and suppliers, to explore how they can reimagine their supply chain by turning competitive mindsets into profitable collaborations. Part of his message has been that companies striving for better supply chain resiliency should consider moving away from a “transactional” mindset fixated on immediate returns toward one that is focused on long-term value creation. Rather than focusing strictly on securing the lowest price, Autry says companies that prioritize collaborative partnerships built through mutual investment in the supply chain often end up creating adaptable networks that can sustain disruptions and drive profitability for everyone involved.

Through his work with the FDC, Autry has observed that the foodservice equipment and supplies industry tends to be more transactionally oriented than other industries, which has resulted in some adversarial relationships. This can lead to suppliers and dealers prioritizing short-term gains where one side has a better financial outcome (win-lose) instead of long-term stability that sees both sides grow (win-win). Companies often gravitate toward the short-term approach because they see win-win relationships as leaving money on the table in certain exchanges, Autry explains, and their goal is to capture as much revenue as possible in every interaction. Although that may seem like the best way to maximize success, it can undermine stability and lead to long-term reductions in performance. Take, for example, a foodservice equipment dealer that frequently switches suppliers to chase the lowest cost. They may be able to attract more buyers or enjoy larger profit margins for a time, but this strategy can lead to quality inconsistencies and supply disruptions that cause customers to lose confidence and look elsewhere.

Similarly, suppliers sometimes pressure dealers with rigid pricing models, especially during periods of economic unease. “[Rigid pricing models] fail to account for changing market conditions and erode trust, reduce flexibility and ultimately increase overall supply chain risk, which can cut into margins in the long run,” Autry says. “The key is to be able to recognize when ‘taking one for the team’ today is worth it to ensure supply, product quality and customer lifetime value tomorrow.”

Tackling Suboptimization Head-On

Ultimately, the goal of forming strategic partnerships is to fully optimize end-to-end supply chains. Autry’s work with the FDC includes identifying how dealers and suppliers can achieve this optimization by streamlining the flow of raw materials, products, logistics, and data across the supply chain. As Autry points out, trust and collaboration are fundamental to establishing this kind of structure.

“Supply chain optimization essentially requires strategic partnerships, where companies collaborate on shared goals like cost reduction, resilience and customer service,” Autry says. “But no one wants to invest in the infrastructure for these to succeed unless they truly believe there is a long-term future with the partners such that economic gains can be fully realized.”

The FDC’s exploration into optimizing the distribution supply chain comes at just the right time, as the prospect of higher tariffs has primed companies to rethink their approach. This creates opportunities for dealers and suppliers to identify and remove inefficiencies and improve their supply chain practices. However, part of the FDC’s work will be to examine how the transactional relationships discussed earlier are creating barriers to these improvements, leading to “suboptimization” in the supply chain. For example, transactional thinking may prompt a company to cut inventory expenses in the short term but cause costly stockouts downstream, impacting partners.

“One way we see this occur far too often is when companies chase short-term financial metrics to an unhealthy degree,” Autry explains. “In doing so, they create systems that become a ‘new normal’ that can harm other financial or operational metrics in the longer term.”

For a real-world example of how suboptimization can weaken a business, consider a company whose sourcing team made a compelling economic case for installing “green” lighting systems in its warehouse. Although the lower energy usage of those green systems would yield substantial financial savings after a 20-month breakeven point, achieving that benefit required a significant, upfront cash outlay. “Because the executives didn’t want financials to suffer in the near term — after all, their compensation was tied directly to hitting certain numbers quarterly — they decided to forego the opportunity to create long-term, permanent savings,” Autry recounts. “Everyone agreed that the green lighting systems were a cost-effective idea, but the company’s leaders didn’t want the financial commitment to occur on their watch.”

Understanding how these types of short-term decisions erode long-term operational and financial health can motivate companies to adjust their incentives to better reward lasting initiatives and avoid short-sighted decisions that lead to higher costs, more inefficiencies, insufficient or inaccurate data, and further strained relationships. Applying that thinking to supply chains can lead to similar positive long-term results. By aligning goals across channel partners, companies can “move toward a more integrated, optimized supply chain that is built to be resilient in the long haul,” Autry says.

Turning Obstacles Into Opportunities

The more closely connected dealers and suppliers become, the more both must embrace trust and share information. Autry says these two factors are key to driving innovation and efficiency because they help create sustained competitive advantages. “In the absence of these drivers, companies will eventually struggle to compete when they run up against rival supply chains that have begun to leverage the drivers that benefit the end user,” he concludes.

The ongoing trade uncertainty is an example of how this relationship-driven approach can be put into practice. Government trade policies can create supply chain planning challenges, and the resulting ambiguity may hamper contract negotiations, reduce profitability and hinder supply chain resilience. Autry says dealers and suppliers in some industry sectors are tackling the issue by collaborating to diversify sourcing, negotiating bulk purchasing agreements that include supplies from non-tariff or lower-tariff nations, and, as mentioned earlier, shifting procurement to countries with lower tariffs.

Other companies have successfully used joint inventory management strategies such as vendor-managed inventory — where the supplier maintains inventory at the dealer’s facility — or strategic stockpiling to buffer against tariff-driven cost spikes. Some dealers are even leveraging advanced analytics to improve demand forecasting, and they are sharing that information with their partners, ensuring that manufacturers are not producing excess products and that distributors don’t end up with surplus inventory that is difficult to sell.

“These collaborative approaches help minimize financial strain while maintaining service levels across trading partners,” says Autry, who advises against a wait-and-see approach to the current tariff situation. “Companies that fail to proactively explore alternative sourcing, negotiate pricing flexibility or build the right amount of buffer inventory may find themselves scrambling when tariffs shift suddenly, as they have recently. Delays in assessment and response can also lead to lost market share, strained supplier relationships and diminished profitability. All types of businesses operating in chaotic environments should scenario-plan and establish contingency strategies to remain agile.”

What’s Next?

Looking ahead, Autry expects more companies to shift to using more globally regionalized supply chains with an emphasis on nearshoring. In some cases, domestic production could also be used to mitigate tariff effects but making this happen depends on labor and overhead costs of the domestic operation. Another possible strategy includes dealers establishing efficient relationships with one another (consistently with the antitrust laws) to combine their inventories and fulfill orders based on which company has the product available.

Additionally, Autry predicts more companies will invest in automation and digital tools, including artificial intelligence-driven procurement and blockchain for supply chain transparency, both of which can help with cost management. Strong integrations with business partners, even competitors, could also become the norm. “Long-term collaboration between dealers and suppliers has always been an advantage,” Autry adds, “but it will become even more critical, ensuring resilience against future trade fluctuations.”