Navigate Tariff Turbulence: How to Mitigate Uncertainty With Technology

Small business owners are no strangers to navigating supply chain disruptions or managing tight profit margins. But especially in recent years, when geopolitical tensions, the global COVID-19 pandemic and widespread labor shortages have created ongoing fluctuations, hard-to-predict supply and demand and increased costs on everything from raw materials to finished goods.

According to Deloitte, the top priority for businesses in 2025 should be building agile and resilient supply chains. Since the start of the year, we’ve seen the importance of this with President Donald Trump’s continued roll out of tariffs on certain materials, like steel and aluminum, and on imports from countries with large manufacturing hubs. Going forward, SMBs are going to need to turn to technology to streamline operations, protect cash flow and leverage methodologies like moving average cost (MAC) systems to absorb price fluctuations accurately.

Safeguarding your bottom line

In 2024, small and medium-sized businesses (SMBs) tackled rising costs by strategically adjusting inventory levels and passing along costs, where possible, to the consumers. However, during the holiday shopping season, businesses across industries began to prepare for the then incoming Trump administration by increasing inventory on certain items that typically sell well during the spring season. The fourth quarter rush is typically a profitable time for many businesses, but bulking up on inventory in anticipation of tariff impact left many businesses in the red. For example, Katana Cloud Inventory saw the sharpest increase in cost of goods sold (COGS) in consumer products, such as cosmetics and pharmaceuticals, at the end of 2024 when COGS jumped a staggering 103% compared to Q3 2024. Intentional overstocking is a gamble – if stock is left sitting on store shelves or in the warehouse, it can hurt profitability. For SMBs with slim profit margins, it can be a gamble with detrimental effects.

To protect profits from taking a hit when external forces are at play, such as when tariffs are put in place, it’s critically important that SMBs understand how these forces will impact inventory value. To assess your business, consider what existing inventory looks like, evaluate incoming supply and vendors and identify which external factors will have the most impact. In the case of tariffs, apply tariff costs to purchase orders and then to inventory items to quickly and accurately capture how tariffs will affect costs and profits.

For many SMBs, it may feel like you’re racing against the clock to make this assessment, but having the right technology in place can give you a leg up. For example, with an inventory management solution, you can use predictive analytics to plan and forecast accurately with real-time visibility into supply and demand. Integrated tools can monitor demand fluctuation across sales channels, which will give SMBs a competitive advantage and allow for rapid adjustments when necessary.

Implementing tools to manage complex business environments

Tariffs impact more than just raw material costs from your suppliers, they can also affect where you manufacture, assemble and sell. Therefore, implementing technology that can help you streamline operations and holistically manage your business, regardless of complexity, is crucial. For example, manufacturers or warehouse managers can manage tariff-induced cost fluctuations by implementing MAC methods that integrate with real-time inventory management systems. When managing unpredictable costs, MAC provides a clear picture of financial health as it’s able to average out expenses over time and across old and new inventory.

This helps business managers make informed pricing decisions and maintain accurate profit margins. In combination with inventory management software, the method offers additional perks: blending cost fluctuations over time, accurate profit margin tracking and the ability to proactively adjust pricing to prevent losses.

Setting yourself up for future success

As SMBs across industries take action to safeguard their business now and future-proof for success down the line, there are several things that business owners need to keep for continued success. Optimizing purchasing strategies, planning for pricing adjustments, auditing suppliers, automating sales order flow and using real-time inventory tracking can help SMBs proactively manage demand fluctuations and lessen the financial impact of external headwinds. With tariffs expected to shift over the coming years, businesses must remain flexible and adopt technology that allows them to manage business complexities with data-driven strategies.

Author: Ben Hussey is the co-CEO of Katana Cloud Inventory, an inventory management platform that helps companies manage over $2 billion in sales annually. Ben has led many successful sales and revenue teams, helping businesses enhance their e-commerce, manufacturing, inventory, and order management capabilities while delivering amazing customer experiences. In addition to these roles, Ben spent a decade working for a large telecommunications company, leading commerce initiatives of varying sizes and types — from initiation to delivery and run-time. He’s passionate about the impact software can have on a business and working with high-performing teams to deliver results.