- Trump’s tariffs have forced companies to quickly decide whether to absorb extra costs, pass them to consumers, or relocate manufacturing—complicating recovery just as supply chains had rebounded from COVID-19 disruptions. Global supply chain expert Kerim Kfuri argues these challenges can spur valuable innovation.
Among the top concerns regarding President Donald Trump’s litany of tariffs are the effects on the supply chain. The onset of tariffs forced businesses to quickly decide whether to pass on the cost to customers or eat it themselves. Some businesses have even decided to up and move manufacturing facilities to the U.S. to circumvent at least some of the blow.
From an outsider’s perspective, this feels like a one-two punch for consumer goods companies, manufacturers, and supply chain practitioners—especially since many had only recently recovered from the massive disruptions caused by the COVID-19 pandemic.
But one supply chain expert—and a self-described optimist—told Fortune he sees at least one upside to tariffs: innovation. While companies are reckoning with new costs and disruptions, it can actually be a good time to ideate ways to use better and less costly materials. And this could end up being a good thing for companies’ bottom lines.
“When things change, that’s not a bad thing sometimes,” said Kerim Kfuri, CEO of supply chain and logistics company The Atlas Network, which works with 2,000 suppliers in more than 30 countries. “Opportunities through chaos is an amazing outcome that happens when things aren’t going as planned.” The Atlas Network is also the verified supplier for Alibaba.
Kfuri, who is also Shark Tank star Daymond John’s go-to supply chain expert, said his company’s job is to put people at ease and navigate businesses with as little disruption as possible. This could look like a company deciding to use a new material to make a product or its packaging because the material wasn’t available anymore or was too expensive now due to tariffs.
“You wouldn’t have known that, or you wouldn’t have done that, unless you had that scenario,” Kfuri told Fortune.
One example Kfuri referenced was when one of his clients during the pandemic switched the materials it was using out of necessity. The paint supplier was o having trouble properly transporting its goods without leakage. But by switching to a different packaging material, the company ended up saving costs and grew their market “substantially” by using more sustainable materials. That way, the company was able to tout the sustainability side of their business—something that before they “weren’t even considering or thinking about,” Kfuri said.
And a tariff-related example Kfuri gave is how chipmaking companies are exploring other materials options in reaction to the current tax on copper. In that case, companies can start looking into alternative conductive materials or other ways to produce the product.
“There’s too many scenarios where it’s innovation and it’s cost engineering or redevelopment or redesign of products in the face of challenge, whether it’s a pandemic or tariff-related scenario where costs are not able to be absorbed or deferred or passed along,” he said.
Other ways companies are actually combatting tariffs
While there might’ve been a lot of noise about companies reshoring or moving their supply chains entirely, that’s not the only option businesses have to deal with tariffs.
Kfuri said there’s effectively five different options companies have in the face of tariffs:
- Absorption: This is when someone in the supply chain (the supplier, importer, company, or distributor) takes on some or all of the cost of the tariff instead of passing it on to the consumer.
- Deferral: This option involves delaying when and how tariffs are incurred by strategically timing shipments or using free-trade zones.
- Terms and conditions: Businesses can optimize contract terms and payment conditions with suppliers to offset tariff effects by doing things like negotiating longer payment windows to help cash flow and dissipate the tariff impact.
- Price and cost engineering: This is the option Kfuri was referring to in connection with innovation. It’s when companies engineer products or processes to reduce costs.
- Alternative supply chains: This is when companies shift supply chains by switching suppliers or manufacturing locations altogether to avoid tariffs.
Kfuri said the alternative supply chain option is a last resort.
“You don’t want to try to have a scenario where you essentially try to save $1 and cause yourself $4 in headaches because you moved to somewhere where materials access is harder, the output isn’t what you need it to be, the resources aren’t trained, [and] the technology isn’t good,” Kfuri said. “Therefore that widget you tried to save money [on] by moving from ‘A’ to ‘B’ ends up eventually costing you a lot more in challenges, defects, disruptions, and everything else.”
“I have heard so many nightmare stories of clients just [saying], ‘Alright. We’re up and moving to ‘X,’ and they go and they do that, and they spend all this time and money and infrastructure, and it ends up being a nightmare,” he continued. “It would have been better for them to stay where they were and work through the short-term pain to maintain the long-term supply chain process.”
