Three Approaches to Minimize the Impact of Tariffs on Your Supply Chain

Author: Vivi Tran Lynch

March 25, 2025 | 3 min read

Global economic uncertainty and supply chain volatility have become critical challenges for businesses across the world. With shifting trade policies and fluctuating costs, unplanned tariffs can significantly affect operational expenses (OpEx). While tariffs lead to an immediate increase in costs, there are proactive measures companies can take to offset these impacts and maintain financial stability in light of ongoing uncertainty. Let’s explore a range of strategies that companies can adopt to manage the effects of tariffs and improve their supply chain resilience. 

The Long-Term Solution: Supplier Diversification and Nearshoring 

One of the most effective ways to mitigate tariff risks is through supplier diversification and nearshoring. However, it’s important to note that these strategies are long-term solutions, often requiring years to implement fully. Supplier diversification involves sourcing from a broader range of suppliers across different geographic regions, reducing dependency on any single country or market. This approach helps spread the risk, ensuring that if tariffs affect one region, businesses can pivot to other sources without significant disruption. 

Nearshoring, on the other hand, refers to relocating production closer to home markets. By reducing the distance goods must travel, nearshoring can help companies avoid tariffs imposed on imports from distant countries, while also potentially reducing lead times and shipping costs. While both strategies may come with long implementation timelines, they can ultimately offer a substantial reduction in tariff exposure and improve overall supply chain agility. However, nearshoring may not be a viable option for many industries. Companies that can’t nearshore but are working through supplier diversification may look to other strategies to mitigate operational exposure and maintain supply chain resilience. 

Three Strategies to Offset Tariff Impacts This Year 

While supplier diversification and nearshoring are critical long-term strategies to reduce tariff risk, there are several other approaches that companies can implement in the short to medium term to help reduce the financial burden of tariffs and improve operational efficiency. Here are three additional strategies to consider: 

1) Strategic and Effective Demand and Inventory Planning 

A robust inventory strategy blends both effective and strategic planning—each playing a critical role in minimizing the financial impact of tariffs. Effective inventory planning focuses on short-term execution: accurately forecasting demand, optimizing safety stock, and avoiding costly outcomes like stockouts or expedited freight. Effective inventory planning ensures that the right products are available at the right time without bloating carrying costs. Reducing inventory carrying costs can free up capital and improve operating margins, creating a buffer that can help offset the added expense of tariffs without sacrificing service levels. 

On the other hand, strategic inventory planning is longer term. It involves aligning inventory decisions with broader business goals—such as mitigating tariff exposure, managing geopolitical risk, or supporting market expansion. This might mean shifting sourcing strategies, rethinking inventory positioning across your network, or segmenting SKUs by margin and demand volatility. 

To improve both your effective and strategic inventory planning: 

• Use data analytics to increase forecast accuracy and adapt quickly to shifts in customer demand. 

• Analyze market trends to inform safety stock levels and avoid reactive restocking. 

• Diversify sourcing and evaluate inventory placement to reduce tariff impact and lead time risks. 

Integrate inventory decisions with broader S&OP or integrated business planning (IBP) processes for better cross-functional alignment. By taking this dual approach, companies can reduce the financial strain of tariffs and supply chain shocks while building a more resilient, responsive operation.  

2) Fulfillment Optimization 

In addition to managing inventory, optimizing fulfillment operations is crucial for reducing operational costs. The use of automation, data-driven technologies, and other advanced 4-wall strategies can help improve warehouse efficiency and reduce costs. Automation tools such as Automated Storage and Retrieval Systems (AS/RS), Automated Guided Vehicles (AGVs) and Autonomous Mobile Robots (AMRs) belts, are long-term investments in operational scalability and labor reduction—but they require significant upfront capital and careful ROI planning to ensure they align with both current and future distribution needs. Mechanized improvements, such as conveyor and sortation systems, pick-to-light and put-to-light technologies, and robotic picking and packing are more capital-light investments that can deliver meaningful gains in speed, accuracy, and throughput. These solutions are attractive options for facilities looking to enhance productivity through warehouse automation, without the heavy lift of full-scale automation systems. 

Additionally, embracing an advanced four-wall strategy—which refers to end-to-end management the entire distribution center’s operational processes, from receiving to shipping—can uncover opportunities for savings across the entire supply chain. This might involve optimizing warehouse layouts, enhancing labor allocation methods, or streamlining packing workflows to reduce costs. 

By focusing on these areas, businesses can better absorb the impact of tariffs, as they help reduce the overall cost structure of their operations, making them more resilient to external price pressures. 

3) Freight and Logistics Optimization 

Another significant cost driver for businesses facing tariffs are freight and logistics. Transportation costs are rising, and fluctuations in tariffs can further complicate logistics strategies. To mitigate these costs, companies can take several steps to optimize their freight operations. 

First, consolidating shipments is an effective strategy. By combining multiple smaller shipments into a larger, more economical load, companies can lower per-unit transportation costs and improve delivery efficiency. Additionally, renegotiating supplier contracts can help businesses secure more favorable shipping terms, including discounted rates, better delivery times, or bulk shipping deals that reduce overall freight expenses. 

Implementing these strategies can help companies weather the storm of rising tariffs by driving down logistics costs, ultimately allowing them to pass on fewer of those costs to consumers. 

The Bottom Line 

While tariffs are an unfortunate reality of the current global trade environment, businesses don’t have to face these challenges alone. There are proactive steps companies can take to manage supply chain volatility and minimize the impact of tariffs on their bottom line. While supplier diversification and nearshoring are crucial long-term strategies, companies can also improve their financial stability by optimizing inventory and demand planning, enhancing fulfillment operations, and refining their freight and logistics management. By implementing these strategies, companies can move beyond absorbing tariff costs to building leaner, smarter, and more resilient supply chains—where agility and cost discipline become lasting competitive advantages. 

Want to dive deeper into the trade dynamics behind tariffs? Listen to our podcast episode “Understanding North American Trade in a Shifting US Political Landscape”.  

Looking for guidance on your supply chain strategy? Connect with Vivi Tran Lynch to explore how LIDD can help.

For more updates, follow us on LinkedIn. 

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