Supply chains that once operated with relative predictability are now at the mercy of shifting trade agreements, geopolitical tensions, currency fluctuations and sudden tariff changes. For UK manufacturers and distributors, these factors have redefined the rules of inventory management.
The challenge is no longer just about keeping enough stock on hand to meet demand; it’s about finding the optimal balance between cost, resilience and agility in a market where external pressures can change overnight.
The tariff tightrope
Trade tariffs are one of the most disruptive variables in global supply chains. When imposed, adjusted or removed, they directly affect the cost of imported raw materials and finished goods. For manufacturers, a sudden increase in tariffs can erode profit margins, inflate production costs and make pricing less competitive. For distributors, the flow-on effect can lead to higher wholesale prices, inventory bottlenecks and reduced sales volumes.
Over the past decade, businesses have seen tariff changes arise from global trade disputes, new trade agreements and economic sanctions. The unpredictable nature of these changes means traditional, static inventory models, which rely on fixed supplier relationships, lead times and cost assumptions, are no longer sufficient.
Why inventory optimisation matters more than ever
In a tariff-impacted market, inventory optimisation is not simply a cost-control measure; it is a strategic defence mechanism. The ability to hold the right stock, in the right location, at the right time, can be the difference between weathering disruption and being overwhelmed by it.
Effective inventory optimisation allows businesses to:
- Avoid overstocking on items that may become uncompetitive due to tariff hikes.
- Prevent stockouts of critical items that could be subject to delays or cost increases.
- Improve cash flow by reducing excess capital tied up in unsold goods.
- Respond quickly to tariff-related cost changes with alternative sourcing and distribution strategies.
The role of ERP in navigating volatility
Cloud-enabled Enterprise Resource Planning (ERP) systems, like SYSPRO, play a pivotal role in enabling this agility. They provide a single, real-time view of inventory levels, supplier performance, landed costs and customer demand. This visibility is crucial when tariff changes require rapid decision-making.
A modern ERP system can:
- Integrate tariff data into landed cost calculations to provide accurate profit margin insights.
- Run “what if” simulations to model the impact of tariff changes on sourcing, pricing and stock levels.
- Automate replenishment triggers to align orders with updated demand forecasts and cost structures.
- Enable multi-location inventory visibility, allowing businesses to move stock strategically to avoid tariff-heavy routes or ports.
Strategies for balancing stock levels
In practice, inventory optimisation in a volatile market requires a blend of forecasting, diversification and risk mitigation. Here are five key strategies that manufacturers and distributors in the UK are adopting:
1. Dynamic demand forecasting
Traditional forecasting models that rely solely on historical sales data are no longer adequate. Instead, businesses are integrating market intelligence, supplier data, and external economic indicators into their forecasts. This allows for faster adjustments when tariffs are announced or trade policies shift.
2. Supplier and sourcing diversification
Relying on a single supplier or country of origin increases vulnerability. By diversifying sourcing across multiple regions, businesses can spread risk and shift procurement to lower-tariff markets when required.
3. Inventory segmentation
Not all inventory requires the same level of buffer stock. Segmenting products based on their revenue contribution, lead times and tariff risk help allocate working capital more effectively. For example, high-margin, fast-moving products may justify higher stock levels, while slower-moving, high-tariff items may require leaner holdings.
4. Safety stock optimisation
While safety stock acts as a buffer against uncertainty, excessive safety stock can tie up cash and increase carrying costs. ERP-driven safety stock calculations can dynamically adjust levels based on real-time sales, lead time variability and tariff changes.
5. Collaborative planning
Sharing tariff impact data and forecasts with suppliers, distributors and customers enables the entire supply chain to adapt together. Collaborative planning supported by ERP portals can improve lead time accuracy and reduce costly surprises.
The impact on UK manufacturing
In the UK, tariff and trade volatility has been particularly evident since Brexit. For instance, a UK manufacturer importing specialist components from the European Union may find itself facing new customs charges, delays at the border or regulatory checks. Without accurate visibility of these costs and flexible sourcing strategies, the business risks having to absorb the extra expense, squeezing margins and being forced to pass it on to customers.
However, with ERP-enabled inventory optimisation, the same manufacturer can model cost-impact scenarios in real time, compare alternative suppliers, adjust purchase orders and update pricing accordingly, all before any additional costs filter through.
Tariffs and trade rules are likely to continue shifting, especially following the recent imposition of new tariffs by US President Donald Trump, but British businesses can develop greater resilience by taking a proactive approach to optimising inventory, not as a one-off exercise but as an ongoing aspect of business strategy and planning.
Conclusion: From reactive to proactive
In today’s volatile market, the difference between reactive and proactive inventory management is stark. Reactive businesses wait for tariffs to hit and scramble to adjust, often at significant cost. Proactive businesses anticipate changes, model scenarios and take pre-emptive action to protect margins and customer satisfaction.
By embracing advanced ERP capabilities and a data-driven approach to inventory optimisation, UK manufacturers and distributors can not only weather the storms of tariff volatility but turn them into opportunities for competitive advantage.