In a world of escalating trade tensions, tariffs are no longer predictable line items but tactical weapons. From semiconductor embargoes to retaliatory steel tariffs, IT supply chains are now collateral damage. CIOs managing global digital infrastructure and procurement portfolios now have two critical factors to consider: costs associated with supplier pricing and supply chain resilience under economic siege.
Blindsided by Tariffs
Tariffs volatility is not just an economic risk, it is also a strategic risk with political overtones. The use of these targeted duties to achieve diplomatic or industrial policy goals has roiled international markets, industries as well as large, medium and small enterprises. To survive, CIOs must assess their exposure for all of their critical digital supply inputs.
Traditional procurement frameworks only evaluate cost and supply risk but overlook tariff volatility. This blind spot leads to decision-makers being unaware of how sudden changes in tariff policy affects their over-reliance on traditionally tariff-proned regions as well as the over-concentration on regions that have suddenly become targets of new tariff structures.
For example, while procurement usually focuses on low cost acquisitions, IT leaders also require product availability and acquisition compliance. Tariffs can create new fault lines between cost optimization and business continuity. Trade regulations can change with elections, sanctions, or shifting alliances. Many CIOs lack tools that monitor, model, and simulate policy-induced supply shocks. Virtualization, cloud bursting, and digital twins can provide escape routes from physical bottlenecks, but are rarely optimized in tariff-sensitive sourcing plans.
Rethinking the Kraljic Matrix
The Kraljic Matrix is a strategic sourcing tool used to classify an organization’s purchases based on two dimensions: supply risk and profit impact. Developed by Peter Kraljic in 1983, the matrix helps businesses prioritize procurement strategies by segmenting items into four categories—non-critical, leverage, bottleneck, and strategic. Its goal is to minimize supply vulnerabilities and maximize purchasing power, making it a cornerstone for resilient, risk-aware supply chain management and long-term supplier relationship planning.
The traditional Kraljic Matrix was built for an era of relatively stable globalization. It fails to account for a critical new variable: tariff exposure. When a key cloud vendor or hardware component source becomes subject to sudden duties, procurement delays and cost overruns follow, often blindsiding even the most seasoned logistics team.
With a global digital supply chain now resembling a geopolitical minefield, failing to adapt your sourcing strategy within the next 12–24 months risks not just inefficiency, but operational disruption.
Modified Kraljic Matrix with the Tariff Volatility Score (TVS)
The Tactive Research Group Tariff Volatility Score (TVS) allows decision makers to assess the tariff risk associated with products in their supply chain. IT leaders can assign a score from 1 to 5 to each product category or supplier, based on:
- Country of origin and known tariff schedules
- Trade agreement volatility (e.g., WTO disputes, Brexit, US-China tensions)
- Historical tariff application or industry risk (e.g., steel, semiconductors, agriculture)
Table 1 shows how to use the TVS to score products in the supply chain. A score of 1 is for products from stable markets, exempt from tariffs and having predictable economic policies. A score of 5 is for products from countries that are susceptible to high and very volatile tariff rates and unpredictable economic policies.
| TVS Score | Description |
| 1 | Tariff-exempt or FTA-protected (e.g., EU Single Market) |
| 2 | Stable tariff regimes, minor impact |
| 3 | Moderate tariffs, some volatility |
| 4 | High but predictable tariffs (e.g., the US on Chinese tech) |
| 5 | Unpredictable, volatile tariffs or sanctions risk |
Table 1. TVS scores and descriptions.
Figure 1 shows the Kraljic Matrix with the tariff volatility dimension. By incorporating the TVS into the matrix, IT decision makers can obtain clearer insights into how tariffs affect their supply chain and identify actions to take to mitigate the fallout. The briefing table (Table 2) gives an example of a tariff strategy that can result from using the modified Kraljic Matrix.
Figure 1. The Kraljic Matrix with an added tariff volatility dimension that shows possible actions to take as tariff volatility increases.
| Quadrant | Definition | Typical IT Digital Products | Tariff Volatility Strategy |
| Purchasing Management | Low profit impact, low supply risk | Peripheral accessories (keyboards, mice), office software tools | Automate across platforms. Automate procurement workflows to facilitate dynamic sourcing from tariff-safe regions as policies change and flag tariff changes in real time. |
| Materials Management | High profit impact, low supply risk | Laptops, monitors, networking gear, mass-market software licenses | Recalculate, renegotiate, re-source. Recalculate total landed costs to account for tariff impact; bulk-buy to offset tariffs by renegotiating contracts to share tariff burdens; dual-source from tariff-favorable countries. |
| Sourcing Management | Low profit impact, high supply risk | Specialty chips (e.g., GPUs), IoT sensors, proprietary firmware | Build buffer inventories of critical components by identifying and engaging with second-tier suppliers and industry alliances to increase flexibility. |
| Supply Management | High profit impact, high supply risk | Cloud infrastructure hardware, enterprise servers, core SaaS IP | Geo-diversify vendors. Invest in R&D for alternative architectures; negotiate long-term cloud/data agreements or partnerships with tariff-advantaged supplies; consider data localization or regional cloud providers. |
Table 2. Briefing table for a supply management strategy under tariff volatility
Recommendations
- Redesign vendor scorecards to include the Tariff Volatility Score (TVS) as a key metric. Score suppliers 1–5 based on tariff volatility, tariff levels, and country risk. Integrate this as a procurement constraint alongside price and lead time into your supplier scorecards and supply risk models.
- Upgrade your risk matrix with a tariff-aware dimension. Visualize strategic items and bottlenecks using a color-coded matrix that includes tariff risk. This enhanced view will better inform board-level sourcing strategy.
- Establish a cross-functional “Geo-Sourcing Committee.” Include representatives from IT, finance, legal, and procurement to align on tariff mitigation strategies, vendor diversification, and trade agreement optimization.
- Run tariff shock simulations quarterly. Model “what-if” scenarios of sudden tariff increases on high-spend IT categories.Use supply chain modeling tools like SAP IBP, Logility or Kinaxis to forecast the impact of potential tariffs on high-risk items and map alternative supplier options.
- Rebalance cloud and infrastructure vendors by region. For IaaS, SaaS, and hardware, avoid single-country dependencies. Negotiate contracts with regional flexibility and ensure multi-jurisdictional compliance capabilities.
- Engage legal teams to monitor trade policy feeds. Develop alert systems for tariff shifts, export controls, and sanctions. Train procurement teams to respond within 48 hours to any adverse developments.
Bottom Line
If tariffs aren’t in your risk matrix, your risk matrix is outdated. Modernize your supply strategy now, or risk having your IT supply chain become collateral damage in this state of ongoing tariff threats and trade wars.
References
- Purchasing must become supply management, P. Kraljic, Harvard Business Review, 1983
- America First, Office of the United States Trade Representative, n.d.
