Global trade just shifted again—and the implications for middle-market companies are anything but abstract.
The latest: a 90-day pause on non-China tariffs, while China tariffs have surged to 125%. The message from Washington is clear—this is not just about economics. It’s about strategy, security, and power. And the private equity world should take note: this environment is tailor-made for firms that know how to operate, not just buy and hold.
For Private Equity Operating Partners and CFOs, this moment is less about headlines and more about readiness. What matters is how you position your portfolio companies to withstand—and profit from—supply chain disruption, cost volatility, and geopolitical risk. Let’s break it down.
Tariffs as Policy—Not Posturing
The notion that tariffs are just political theater is outdated. With the U.S. actively building coalitions with Europe, the UK, Canada, and Mexico, and isolating China through economic pressure, it’s clear we’ve entered a new trade regime. The U.S. isn’t looking for a quick reset—it’s reshaping the global supply architecture.
And China? They’re not standing still. Restrictions on rare earth materials, pressure on U.S. firms operating abroad, and a domestic economy built on exports make this a high-stakes standoff. China’s demographics and internal demand issues make a pivot to consumption unlikely in the near term. That’s a volatile setup for any business dependent on Chinese manufacturing.
If you’re relying on legacy supply chains, you’re playing defense.
Strategic Sourcing is Now a Value Creation Lever
This environment demands strategic sourcing that goes beyond chasing the lowest cost. It requires:
- Dynamic supplier relationships
- Pre-negotiated backup options
- Cost structures built on transparency, not guesswork
E78 has developed a sourcing methodology anchored in “competitive cost models.” These models provide buyers with deterministic pricing based on core cost drivers—giving you the flexibility to pivot fast when conditions shift.
Here’s how we break down cost modeling:
- Specification-driven costs – Tied to what you buy and how it’s configured. These should reflect predictable price variation based on volume, size, or material.
- Market-driven costs – Linked to commodities or other factors outside a supplier’s control. These need to be parameterized and shared appropriately.
- Supplier-controlled costs – The levers suppliers can actually manage. This is where competition and continuous improvement must be embedded.
This isn’t theoretical. When COVID collapsed global supply chains, companies with resilient sourcing strategies stayed upright. When tariffs upended Chinese imports in 2018, agile firms moved production across Asia in months—not years. The lesson? Flexibility is an asset class.
What PE Operating Partners Should Do Now
If you’re managing a portfolio of middle-market companies, this is a strategic window to drive value. Here’s how:
1. Audit Supply Chain Risk
Start with a portfolio-wide assessment of exposure to tariff volatility and geopolitical risk. Segment suppliers by geography, dependency, and cost structure. Know where you’re vulnerable—before the next headline hits.
2. Stand Up Cost Models
Ditch outdated pricing schemes. Implement structured models that define cost components, allowing you to negotiate smarter and react faster. It’s not about cutting supplier margins—it’s about clarity.
3. Price the Tail
In most sourcing strategies, the top 20% of SKUs get 80% of the attention. That’s a mistake. Suppliers make their margin on the tail—custom orders, change requests, one-offs. Competitive cost models eliminate this blind spot.
4. Automate the RFP Engine
Speed matters. E78’s sourcing technology enables full-category RFP execution with built-in cost modeling, pricing logic, and data transparency. What used to take months can now be done in weeks—with greater precision.
5. Embed Optionality
Resiliency isn’t just having backup suppliers—it’s having priced, contracted alternatives that can be activated without delay. Optionality is how you turn uncertainty into leverage.
The Bottom Line: Build for Agility
Tariffs aren’t going away anytime soon. Geopolitics is now a direct input to your P&L. And cost inflation—while cyclical—will remain a factor in strategic sourcing.
Operating Partners and CFOs who lead with data, structure, and flexibility will outperform. Those who wait for clarity will be reacting to disruptions instead of capitalizing on them.
Our Strategic Sourcing practice help PE-backed companies build agile, cost-optimized, and defensible supply chains that stand up to real-world shocks. Because in a world where trade policy is just another front in a global chess game, execution is everything.
Contact us to make sure you’re not just about sourcing cheaper – You’re sourcing smarter.
