Tariff upheaval has roiled trading relationships on a global scale, but an ongoing dialogue is taking place between brands and their suppliers. In fact, they may be in closer contact than ever before.
That’s according to Nithin Mummaneni, CEO of Infinity Loop, a negotiation intelligence platform that aids enterprises in negotiating better terms with the manufacturers that make their products.
Procurement teams have increased supplier contract renegotiations by as much as sevenfold over the past four months, as compared to any other four-month period the platform has tracked. Companies are working to offset heightened costs, he said, without upending established supplier relationships or redefining their sourcing maps entirely.
Across sectors like apparel retail, consumer packaged goods and pharma, tariff uncertainty has put an end to the iron-clad contract with set terms and a defined end date. “When these tariffs are implemented, it severely disrupts business and it creates unpredictability,” Mummaneni told Sourcing Journal. “And a lot of that is not captured in the contract, meaning that [companies are] exposed, either financially or from a lead-time perspective.”
The Trump administration’s ever-shifting tariff regime has prompted brands and retailers to almost live at the negotiating table with their suppliers, as import taxes are adding unexpected new costs to in-progress orders and throwing a wrench into future planning. Assortment, quantity, price and delivery times are all impacted by tariffs, with many enterprises hoping that their suppliers will share the burden of new costs.
“Essentially, all the contracts—instead of being a static document—become this this living kind of relationship that is ever-evolving,” Mummaneni said. “It’s trying to create fairness between the two parties, so that if there is a tariff, they can either share it or [pass it through to the consumer] for a certain period.”
While it might seem that suppliers would get the shorter end of the stick in negotiations—as they have, traditionally, for years—Mummaneni said manufacturers are taking a shrewd approach to business. “It really depends on how much leverage the customer has,” he said. “If you’re a large retailer… they tend to get what they want in terms of what they ask for from suppliers versus somebody that’s mid-market.”
From suppliers’ perspective, keeping the biggest customers happy is the objective. But mid-tier buyers might face more pushback from the suppliers they ask to share or shoulder the tariff burden. “We’re starting to see suppliers picking and choosing their battles rather than having a one-size-fits-all reaction to a negotiation,” he added.
While companies have been exploring supply chain diversification efforts for years, opting in many cases to broaden sourcing rather than deepen reliance on any one locale, Mummaneni said the biggest decision-making driver in today’s sourcing environment is risk mitigation. Companies are sticking with their most reliable, and often largest, suppliers, negotiating terms based on tariffs, and saving their bigger diversification plans for a later date.
“They’re not going to make a decision until you know they actually see” how the tariffs shake out in the longer run, he believes.
“How reliable is that [new] supplier? What does that quality look like? They have to assess those other factors before pulling the plug” on an existing relationship and trying something new, he said. “Because if it’s just a margin hit with their existing supplier, but they don’t have to worry about quality or reputational risk or lead time, they’re just going to stick with the incumbent,” he added. “You’re starting to see like a lot of those companies look at things more holistically, rather than just focus on the price.”
