Let’s face it–economic uncertainty is part of running a business. But today’s supply chains face double the trouble: recession risks AND shifting tariffs.
We all hear about how tariffs hit consumers in their wallet, but what about you as a product seller? Trade policies and tariffs can drive up costs, shake up supplier relationships, and force you to rethink your sourcing strategies. Meanwhile, recessions squeeze demand and put pressure on your cash flow.
Recessions, unfortunately, are inevitable. They’re part of the economic lifecycle. The real question is how can your business adapt when both of these forces, recessions and tariffs, hit at once? Don’t worry, we’ve got you covered! In this guide, we’ll explore key strategies to make your supply chain more resilient against both economic storms and trade policy shifts. These practices will empower you to optimize operations, reduce risks, and keep your business agile and competitive, regardless of what the economy throws your way.
How tariffs & recessions disrupt supply chains
Both tariffs and recessions create significant challenges for supply chains, but in different ways:
- Tariffs: Drive up your import costs, forcing you to consider alternative suppliers, and create bottlenecks in your supply chain.
- Recessions: Shrink consumer demand, squeeze your profit margins, and push you to cut costs.
For example, current U.S. tariffs on Chinese goods have forced businesses to find suppliers elsewhere or absorb higher costs.
If the US does go into a recession, this won’t be the first time the US experiences (tariff caused) inflation and a recession at the same time (this is often called stagflation). During the 1970s stagflation was caused by a number of factors including oil price shocks, higher unemployment and poor economic policy including, that’s right, tariffs.
Strategies to build a tariff and recession-proof supply chain
Is it even possible to build a supply chain that can weather economic downturns and tariffs imposed by various countries without significant disruptions or financial strain? The answer is yes! Here are some key strategies to make it happen.
Leverage automation
Automation isn’t just a buzzword–it’s essential for cutting costs when tariffs rise or the economy falls. By streamlining operations, you can absorb the ebbs and flows of costs without compromising your bottom line.
Your business can automate:
- Inventory updates
- Order processing and fulfillment
- Invoice and payment processing
- Supplier communications
- Warehouse operations like picking and packing
- Logistics like route planning, transportation scheduling, and delivery tracking
By automating these repetitive, labor-intensive processes you’ll minimize operational expenses and avoid passing higher costs to your customers, who might already be watching their spending. You’ll be boosting your accuracy and productivity. Talk about doing more with less!
Build strong inventory management practices
Having the right products, in the right amounts, at the right time is crucial when cash flow gets tight and customer demand becomes unpredictable. Strong inventory management helps you bring on different suppliers faster and eliminate waste. After all, paying tariffs is bad enough – paying them on stock you never sell is even worse! Optimizing your inventory can reduce costs, improve efficiency, and help keep your customers happy even during trying times. To further recession-proof your inventory management, try blending in just-in-time (JIT) and just-in-case (JIC) inventory strategies. JIT keeps your holding costs low by replenishing stock only when needed, while JIC gives you a safety buffer, referred to as safety stock, for unexpected demand spikes or supplier delays.
AI-driven demand forecasting tools can be your best friends while fine tuning your supply chain. They analyze real-time market data, historical trends, and external factors (such as economic indicators, seasonality, and geopolitical events) in minutes to predict demand patterns with amazing accuracy. When tariffs cause your products to be 25% more expensive, getting your inventory levels just right is even more critical.
Diversify your supplier base
Are you relying on suppliers from a single country? That’s putting all your supply chain eggs in one basket, a risky move when tariffs enter the picture. We recommend diversifying your supplier base across regions to reduce your tariff risk. Many companies hit by the US-China tariffs have shifted manufacturing to Vietnam, Mexico, and India to keep costs manageable.
This also protects you during recessions. If your primary supplier shuts down due to economic pressure you won’t be left high and dry.
Work with suppliers from different countries or regions to minimize the impact of localized economic downturns or geopolitical issues and ensure business continuity.
Don’t forget about local suppliers! They aren’t subject to tariffs and can be a lifeline during global disruptions, offering faster delivery times and reduced dependency on international logistics. Partnering with local suppliers also supports local economies, which can be a win-win during tough times.
Strengthen relationships with supply chain partners
Your suppliers, manufacturers, distributors, and other partners in the supply chain are all part of your extended team. Strong, collaborative relationships with these team members can provide stability, flexibility, and support when weathering economic storms.
Businesses with strong supplier relationships often enjoy:
- Favorable contract and payment terms, such as extended deadlines or discounts, that ease cash flow pressures.
- Priority access to essential materials, even during shortages or supply chain disruptions.
To strengthen these crucial relationships:
- Be transparent: Share forecasts, challenges, and goals openly to build trust and alignment.
- Solve problems together: Work together to address challenges, such as tariffs, supply chain bottlenecks, or rising costs.
- Show appreciation: Reward loyal partners with incentives like early payments or long-term contracts.
- Leverage technology: Use collaborative platforms to share real-time data and improve coordination.
Enhance supply chain visibility
Supply chain visibility means tracking and monitoring every component of your supply chain in real-time, from raw materials to finished products. Without this visibility, you're flying blind – whether facing recession-driven demand drops or sudden tariff hikes.
For example, an unexpected increase in import duties can delay shipments or force last-minute supplier changes, creating inefficiencies and extra costs.
Supply chain visibility tools let you track shipments, monitor tariff-related costs, and proactively adjust logistics to avoid disruptions. Platforms like Cin7 bring your supply chain together into a single solution, helping you respond quickly to economic downturns and trade policy shifts.
Try implementing Internet of Things (IoT) technology, such as IoT sensors, RFID tags, and GPS tracking for real-time updates on your goods’ location and condition as they move through the supply chain. This allows you to make decisions quicker and reduces your risk for disruptions. You can also leverage blockchain technology, which provides a tamper-proof record of every transaction in your supply chain. This enhances transparency, reduces the risk of fraud, and builds trust with partners and customers, all of which can help you remain resilient during tough economic times.
Above all, foster open communication within your supply chain network – regular updates help you spot and address issues before they become problems.
Build a resilient logistics and transportation network
During economic downturns, transportation costs can skyrocket and delays can disrupt your flow of goods. A flexible, resilient logistics and transportation system is essential to combat this.
To ensure continuity and reduce vulnerability, businesses must focus on creating a flexible, resilient logistics system that can weather any storm.
Don't put all your faith in one transportation mode. Relying solely on trucking or air freight leaves you vulnerable to fuel price hikes, strikes, or weather delays. Instead, mix it up with multiple options (rail, sea, road) to mitigate risks and choose the most cost-effective solution for each situation.
Leveraging logistics partnerships can provide flexibility and cost savings. Third-party logistics (3PL) providers can provide flexibility and scalability and allow you to scale operations up or down in response to demand fluctuations without the need for heavy investments in infrastructure.
Remember to always have a back up plan! Having contingency plans, such as alternative routes and emergency storage facilities, helps you adapt quickly to unexpected challenges.
Adopt sustainable practices: Go green to save green
Sustainability initiatives can also help tariff and recession-proof a supply chain through cost savings. Reducing energy use and minimizing waste lowers your operational expenses. Plus, consumers and investors are increasingly prioritizing sustainability, giving you an edge, even during tough economic times.
Some eco-friendly best practices:
- Eco-friendly packaging and transportation: Switch to recyclable or biodegradable packaging materials and explore greener transportation options, such as electric vehicles or carbon-neutral shipping.
- Invest in renewable energy: Power your warehouses, factories, and offices with renewable energy sources like solar or wind. This reduces your carbon footprint and saves money in the long run!
- Partner with ethical and sustainable suppliers: Work with suppliers who prioritize sustainability in their operations. Ensuring your raw materials are sourced responsibly, without exploiting workers or harming the environment builds trust with customers and strengthens your reputation.
- Monitor and reduce carbon emissions: Use tools to measure your supply chain’s carbon footprint and set targets for reduction. This can help you comply with regulations and appeal to environmentally conscious consumers.
Leverage data
A recession and/or tariffs can tighten margins and increase risk, so don’t rely on guesswork to make decisions. Data-driven insights help you spot inefficiencies, anticipate demand changes, and allocate resources effectively.
Here’s how to harness your data:
- Create a centralized data hub: Consolidate data from all parts of your supply chain into a single platform for a holistic view of your operations.
- Invest in advanced analytics tools: Use predictive analytics and machine learning to analyze historical data and forecast future trends. This can help you anticipate demand, optimize inventory levels, and reduce waste.
- Implement real-time monitoring systems: Deploy IoT sensors, GPS tracking, and other technologies to collect real-time data on shipments, inventory, and production. This allows you to identify and address issues as they arise.
- Use data to improve supplier relationships: Share data with your suppliers to improve collaboration and transparency.
How Cin7 helps businesses build financial resilience
Cin7’s comprehensive inventory management software helps SMBs streamline their operations, improve operational efficiency, and maintain financial resilience during tough economic times.
Here are some ways that Cin7 can help you build a tariff and recession-proof supply chain.
- Real-time inventory tracking and demand forecasting: Cin7 provides real-time visibility into inventory levels across multiple locations. Use ForesightAI to reduce the risk of overstocking and improve cash flow so you can meet customer demand without tying up capital. This is especially important if your inventory costs have risen significantly due to tariffs.
- Financial integration: Cin7 syncs seamlessly with top accounting software and solutions like QuickBooks and Xero giving you a clear view of your financial health, helping you make informed decisions.
- Cost tracking: Cin7 helps you monitor expenses associated with inventory, shipping, and operations to identify cost-saving opportunities.
- Supplier management: Tariffs may mean that you need to add new suppliers or adjust what you are ordering from current suppliers. With Cin7, you can manage all your suppliers in one place, set reorder points, and automate processes, making it easier to adjust to tariff-related changes
Wrapping Up
Tariffs and recessions are inevitable, but supply chain disruptions don’t have to be. The key to resiliency is preparation—leveraging automation, supplier diversification, and real-time visibility to stay agile no matter what the economy throws your way.
With the right strategy you can avoid passing on the full cost of tariffs to customers (which can damage your brand and drive away business) and get a leg up on your competitors in challenging times. See how Cin7 can help your business adapt by requesting a free demo today.
