Know your supplier – Diversifying comes with risk, amidst escalating trade wars

For CPG companies looking to onshore, shifting supply chains to domestic production may remain untenable. Businesses still need to consider the availability and cost of labor, the strength of the U.S. dollar, and the cost of input materials.

For that reason, we’re seeing a variety of immediate responses as CPG and other consumer-facing companies re-evaluate their supply chain and enterprise strategies:

• Apple. Had already been in the process of shifting its production away from China to countries like Vietnam and India. It will now look to make more of its iPhones in India and move some iPad and AirPod production to Vietnam. It is estimated that it regained $3 trillion market cap after President Trump exempted tariffs on iPhones
• Walmart. Has moved some of its sourcing to India and Mexico, away from China. Offers a program that helps factories set up in its home state, Arkansas. Moreover, it has committed to “maintain flexibility” in case it has to spend more to keep prices low
• Coca-Cola. Is looking to packaging substitutions to limit tariff exposure and contain costs. As a result, it may increase its use of plastic bottles in the U.S. as an alternative to aluminum cans, which runs counter to their stated sustainability goals to reduce single-use plastics
• Mondelez. Alongside Danone, Unilever, and Nestlé, Mondelez International saw share values drop with President Trump’s tariff announcement. With the U.S. a less attractive market for multinational producers, they may seek out alternative markets, such as emerging economies with expanding middle classes. China and India are especially attractive due to their rapid urbanization, growing consumer spending, and rising appetite for premium food and drink products
• Steve Madden. Has rapidly ramped down operations in China in 2024 with expected reductions by 40-45%. It had been working for several years to build up a factory base in Cambodia, Vietnam, Brazil, and Mexico and has been onboarding new suppliers aggressively
• Hasbro. Has set a goal for the end of next year, which is to be “60% out of China” by shifting production to the U.S. and elsewhere
• Danfosa. Has seen its costs rise considerably in China and is looking for ways to reduce transportation-related emissions. They acquired a company in the U.S. to move operations back to the U.S.

Which risks should CPG executive teams be considering?

As of 2025, 60% of companies are restructuring their supply chains to deal with tariff pressures. CPG is no exception. As CPG companies bring new suppliers online, there is a vast portfolio of risks to consider, which has made the onshoring decision a false binary. Executive teams will have to evaluate a fuller portfolio of potential risks with their multi-sourcing strategy:

• Political. The broadening of political risk is worth noting, with geopolitical conflicts on the rise alongside rapid policy shifts in the U.S. as well as other markets. The World Economic Forum just ranked state-based armed conflict as the biggest risk to create a global crisis in 2025. Organizations will have to anticipate, unfortunately, more country- and region-specific political risk across their global network
• Operational. The complexity of global supply chains can’t be overstated. The largest CPG companies work with thousands of vendors across continents. Supply chain planning takes years and is largely incompatible with short-term swings. Procurement teams are scaling up alongside localized efforts for government affairs, tax, and legal departments
• Financial. With greater volatility in markets and asset classes, CPG companies are feeling pressure from inflation, import fees, reduction in market access, currency volatility, and recessionary buying patterns from customers downstream. Shelf prices have increased 30% since 2020, and with margins already stressed, costly changes to CPG supply chains have changed 2025 projections for most CPG companies to a low-, slow-, or no-growth scenario
• Environmental. As new suppliers are being rushed into procurement systems and increased environmental reporting requirements, companies will have to ensure their suppliers meet a myriad of disclosure requirements based on many (different) jurisdictional requirements – be it on emissions, deforestation-related commodities (e.g., palm oil, timber, beef, etc.), critical minerals. Critical for CPG companies are often the packaging and plastics target. Currently, only 15% of companies with package recyclability targets are on track to meet them
• Social. Similarly to the environmental factors, the global patchwork of disclosure requirements includes topics related to workforce demographics, human rights, child labor, and more. Companies that are onboarding for domestic consumption will have to demonstrate their compatibility with the necessary regulations
• National Security. With an uncertain landing spot for the China vs. U.S. trade war, the policy agenda from the White House will continue to blacklist Chinese companies, work to decouple supply chains, and isolate Chinese exports from U.S. trading blocks. Thinking through national security implications can support CPG executive teams as they rethink their investments and operations in China and China-adjacent markets (e.g., Vietnam, Cambodia, etc.)
• Cyber. With the average cyber attack costing CPG companies on average $4 million, Cyber risks will need to be evaluated carefully for each new supplier being onboarded
• Technology readiness. With major gains being found through automation, executive teams will have to consider if local suppliers offer the latest processing and packaging technology to reduce labor costs and improve time to delivery
• Reputational. Notoriously challenging to quantify, this is the sum of all of the above, with the extra ingredients of crisis management and communications. With such radical policy shifts, many go back to their corporate core values and materiality assessments to determine how to best adjust their enterprise strategy for both short-term political risks and long-term economic prosperity

With multi-sourcing to assess these suppliers effectively and expediently, CPG companies are retooling their Know Your Supplier (KYS) approaches to balance the short- and long-term risk profiles.

What is typically part of a KYS program?

KYS includes detailed due diligence to verify the reliability and integrity of potential business partners. This systematic process allows CPG companies to assess their suppliers before and during business relationships. KYS programs collect and analyze the following data:

• Identity verification and legal status
• Operational reliability
• Financial sustainability
• Reputation and track record
• Environmental compatibility standards and adherence with global standards
• Human rights compliance and ensuring adherence with enterprise ethical framework and values
• Health and safety protocol

How to upgrade a KYS program for CPG companies?

While the above parameters have served companies well, with rising tensions, currency risks, and fast-evolving tariff policies, leading CPG companies will have to enhance their KYS program. Leading CPG companies have considered the following:

• Leverage voluntary reporting capabilities from ESG and Sustainability disclosure teams to assess supplier quality and multi-dimensionality
• Improve supply chain traceability by providing detailed records of every step to maintain quality, meet regulations, enhance supply chain insight, protect the brand, and support sustainability efforts
• Automate processes where possible and leverage AI to analyze data and identify potential risks
• Implement vendor management software (VMS) and streamline KYS processes, automate checks against sanction lists
• Intensify onboarding to establish clear objectives, build stronger relationships, and train suppliers in strategic and administrative topics
• Establish clear performance metrics and monitor supplier performance regularly (more than once a year)

Questions for the executive teams:

• When have we last evaluated the robustness and dimensions of our know your supplier program? What is the appropriate cadence to do so?
• Of all the potential risks factors when we evaluate new suppliers, what will matter most to our organization’s short-term viability and profitability? What about for the long-term?
• Which suppliers are we most dependent on and have the fewest options for multi-sourcing? How can we reconsider our product or merchandising strategy to hedge against tariff exposure risks?
• How can we accelerate supplier onboarding to reduce the normal time lag given immediate financial risks?
• How do we most efficiently evaluate different political scenarios to determine potential end-games for U.S. trade policy and consider strategic contingencies for each?
• How are our suppliers impacted by new environmental and social regulations globally?