Tariffs and supply chain disruptions: Why S&OP is your secret weapon
At just about the halfway point, the 2020s have been a decade of unprecedented supply chain disruptions. In 2020, the global COVID-19 pandemic 'brought to light previously unseen vulnerabilities' in the global supply chain, according to Ernst & Young. Five years later, the world's vast and intricate supply, demand, and logistics networks have faced more disruptions from a bird flu epidemic, a global trade war, on-again-off-again tariffs, and other factors.
In particular, tariffs and related trade fights can inject extreme uncertainty, complexity, and volatility into already fragile supply chain networks, with impacts extending well into the future. In April 2025, Axios reported that '[a] slew of companies have warned of higher prices or have already increased them, including Procter & Gamble, Best Buy, Unilever, Ford, Shein, Temu, AutoZone and Hermès,' and the Halloween and Costume Association was already warning tariffs could 'wipe out Halloween and severely disrupt Christmas unless urgent action is taken.'
Companies that rely on efficient and effective supply chain management, like product manufacturers, are facing tremendous pressure to step up their game in the face of mounting challenges. As a result, supply chain leaders and their colleagues in finance and operations are asking questions like, 'Should we onshore our manufacturing?' 'Should we cut our foreign growth plan?' 'Should we change product strategies?' and more.
These are all good questions, and every business is different. But I believe there's a common denominator that can help any company reduce risk and more effectively manage supply chain volatility: a very high-level sales and operations planning (S&OP) process.
WHAT IS S&OP?
Simply put, S&OP is a cross-functional alignment exercise designed to match product inventory with market demand. The process usually involves a monthly meeting with key people from finance, sales, marketing, operations, and possibly other business areas like production, warehousing, and logistics.
For companies managing complex supply chains, S&OP is the bridge between strategic planning (sometimes considered a part of integrated business planning, or IBP), which prepares medium and long-range forecasts, and sales and operations execution (S&OE), which is the daily tactical execution of the company's IBP and S&OE processes.
The fact that most people take for granted that they can get pretty much anything they want, nearly any time, from nearly any part of the world is a testament to the miracle of global supply chains. However, these intricate networks are vulnerable to a number of factors, and problems in one part of the chain almost always ripple elsewhere.
The risk of supply chain disruptions goes up considerably when companies' assumptions about demand, supply, logistics, or other factors come into question. As one example, tariffs may reduce demand for products and create inventory imbalances. These imbalances affect corporate profitability, which can impact jobs or corporate investments. The more control a company has over reducing daylight between supply and demand, the less things like tariffs and trade uncertainties impact the company.
This is where a highly effective S&OP process can drive more value than any other effort. Done well, S&OP keeps daily execution in sync with business strategy, brings alignment and transparency between business functions, drives trust and accuracy in the numbers, exposes gaps and creates accountability to close them, and enables clarity in probability and risk analysis. Done exceptionally well, S&OP empowers companies to use continuous alignment to make daily or even hourly incremental tweaks based on changing market conditions.
Tariffs and the threat of a trade war are serious concerns for supply chains, but the principles of excellent supply chain planning don't really change if the threat is tariffs, an active hurricane season, or a rash of pirate activity in the Atlantic Ocean. Principles inform strategy, strategy informs tactics, and tactical execution creates a virtuous feedback loop in a good S&OP process.
Start with these principles:
1. Use a single number system: Ensure accurate data and single sources of truth to avoid 'garbage in, garbage out.' In a single number system, one department develops the forecast, and the other departments participate by sharing assumptions for lifting or decrementing the forecast. The 'consensus' then is around the assumptions, not the number, which eliminates confusion.
2. Connect to strategy: Lead with goals, tolerances, and full integration of the financial plan. Good tools and processes allow teams to see where plans are out of sync with the strategy and financial plan. This enables teams to take corrective action much earlier and bring the business back into alignment with strategy.
3. Eliminate bias: Insist on a culture of getting numbers right and managing specific behaviors. Think of bias like shooting arrows at a target: If you aim for the center, but constantly hit to the right of the bullseye, you are biased to shoot right of the bullseye. Bias is easy to see and should be easy to correct, but it requires honesty.
4. Drive with assumptions: Ensure end-to-end planning, incorporate the entire planning horizon, and be sure to include all key trends. Related to No. 1 above, companies that learn to focus on assumptions rather than the number tend to be much better at executing a valid plan because they understand what really moves the needle.
5. Close gaps: Insist on understanding the 'why' and 'how,' surface discrepancies quickly, and guide with trustworthy analytics. Using a single number system and focusing on assumptions naturally reveals gaps and the ideal ways to close them.
6. Mitigate risks: Get very good at probability analysis, cross-functional simulations, brainstorming, and connecting it all back to strategy. When steps one to five above are accomplished, the company is in a strong position to run simulations and risk analysis and can do so very rapidly and with confidence.
It's hard to make good supply chain decisions even in the best of times. When tariffs or other uncertainties cloud the crystal ball, it's even harder. Amid supply chain uncertainty, a strong S&OP process is your secret weapon.
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