US SMBs adopt AI and strategic buffers amid ongoing tariff challenges

Small and mid-sized US businesses are increasingly using AI tools and strategic inventory management to navigate rising costs and supply disruptions caused by ongoing trade tariffs, reflecting a shift towards resilient yet costly supply chain practices.

Amid ongoing trade disruptions and tariff pressures, many small and mid-sized businesses (SMBs) in the United States are actively pursuing transformations in their supply chain strategies to manage rising costs and adapt...

to an increasingly volatile environment. A recent report highlights how these businesses are grappling with higher prices and shifting sourcing preferences as tariff policies evolve.

According to the report, nearly half of SMB respondents (44%) have absorbed higher inventory costs driven by tariffs without reducing their purchasing volumes, underscoring a significant cost burden. Meanwhile, 19% have opted to scale back inventory purchases as a cost management tactic. This dynamic reflects challenging trade conditions that are causing businesses to reevaluate their supplier sourcing: the proportion favouring domestic suppliers has increased slightly from 19% in 2024 to 21% in 2025. Conversely, preference for offshore suppliers has declined from 31% to 28%, and those splitting sourcing between domestic and offshore suppliers dropped from 47% to 38%. Notably, a small but important segment, 5%, expressed a preference for domestic suppliers despite domestic unavailability, highlighting sourcing constraints. An additional 8% were uncertain about their company’s sourcing preferences.

The report also found that lead times have marginally lengthened in early 2025, though some recent easing of delays hints at supply chains beginning to stabilise after months of tariff-induced shock. This easing is tentative, and whether the relief will be durable remains uncertain.

Inventory management practices have shifted significantly amid this volatility. More SMBs are holding excess stock as a strategic buffer, with 30% reporting that over 30% of their excess inventory is deliberately held for such purposes, up from 23% the previous year. However, this strategy carries risks. Dead stock, inventory that can no longer be sold, has risen: 46% of respondents report at least 5% dead stock, and 17% report 10% or more. This increase in obsolete inventory highlights the balancing act companies face between mitigating supply chain disruptions and avoiding excess inventory risks.

SMBs often lack mature rate management or hedging strategies to navigate tariff-induced cost fluctuations. Nearly half do not have formal hedging or contracting approaches, and only 36% use long-term supplier contracts. Nonetheless, the use of “forward cover” arrangements, locking prices or exchange rates for future purchases, has risen from 11% to 15%, reflecting increased attempts to stabilise costs. Shared-risk inventory models such as vendor-managed inventory (VMI) and consignment are gaining traction, with usage climbing to 44% and 25%, respectively, indicating a shift towards closer supplier collaboration.

The report also underlines a rapid rise in artificial intelligence (AI) adoption for inventory management among SMBs, with 48% now deploying AI tools, more than double the rate from the previous year, demonstrating a growing reliance on technology to optimise supply chain decisions amid complexity.

These SMB trends present a microcosm of broader tariff impacts on U.S. businesses highlighted in wider analyses. For instance, an in-depth study by the JPMorganChase Institute revealed that President Donald Trump’s tariff plans would cost mid-sized U.S. employers $82.3 billion directly, particularly hitting sectors heavily reliant on imports like retail and wholesale. Contrary to claims that foreign manufacturers bear the brunt, U.S. firms are absorbing these costs, often responding with price hikes, layoffs, or reduced margins. Larger companies such as Amazon and Walmart have buffered impacts by stockpiling inventories in advance.

Retail giants provide further illustration. Levi Strauss, for example, recently raised its annual profit forecast but still fell short of analyst expectations due to ongoing tariff costs. Despite proactive steps such as advancing holiday inventory and modest price increases, tariffs are expected to reduce Levi’s gross margin by 130 basis points in the fourth quarter, illustrating the difficulty of fully offsetting tariff burdens. Nevertheless, the company’s strong third-quarter results showed resilience driven by robust denim demand globally.

Similarly, Walmart has reported strong financial performance despite gradual tariff cost pressures. CEO Doug McMillon noted a steady increase in costs as post-tariff inventory cycles through, prompting price adjustments paired with strategic investments in value offerings and faster delivery to attract higher-income shoppers. Walmart’s adaptability and diversified strategies have helped it maintain comparable sales growth and raise profit forecasts, setting it apart from some weaker peers like Target.

Across industries, tariff-induced costs are significant. Global companies reported over $35 billion in U.S. tariff-related expenses as of October 2025, with projections for $21 billion to $23 billion in 2025 alone. Automakers such as Toyota and Ford, and consumer brands including Nike and H&M, have experienced profitability impacts but are cautiously optimistic due to recent trade agreements with the EU and Japan that may signal easing tensions.

For consumers, tariffs translate into higher prices for a range of goods. Reports from several sources predict substantial price increases on everyday items such as apparel, toys, furniture, and appliances. For example, tariffs could push toy prices up by as much as 56%, sharply reducing consumer demand, while apparel and footwear costs may jump between 30% and 70%. The National Retail Federation warns that while tariffs aim to encourage domestic production, they disproportionately burden low-income households and could dent GDP by up to $50 billion.

In this evolving landscape, SMBs and large corporations alike are recalibrating supply chain strategies, emphasising domestic sourcing where feasible, enhancing inventory buffers, adopting new technologies, and experimenting with shared-risk models to absorb shocks. While some recent easing in supply chain disruptions offers hope, the full economic and strategic ramifications of tariffs remain complex and dynamic.

The current state suggests companies are transitioning from initial tariff shock to a phase of managed integration, balancing cost pressures with operational resilience. Yet, uncertainties linger, particularly with government policy shifts and trade negotiations continuing to unfold, posing ongoing challenges for supply chain planning into 2026 and beyond.

Source: Noah Wire Services