The Tariff Effect on Demand Planning
Imagine you’re in the market for a new car, and you effortlessly find the exact model with every spec you dreamed of — the orange racing stripe, the extra cupholders, the works. Or think about your weekly supermarket run — every item you want is perfectly stocked, from fresh bananas to your favorite soda flavor. Ever wonder how businesses predict what products to stock where, when, and in what quantities?
These precise decisions often hinge on demand planning & forecasting — a critical function in supply chains. But modern demand planners don’t operate in a vacuum. Global trade policies, like tariffs – either announced and introduced or scaled back — have added significant layers of complexity to how demand is predicted and managed. The good news? New tools for the AI era are empowering businesses to remain agile and efficient in this taxing environment.
In the first part of our blog series covering the impact of tariffs on the supply chain, we provided an overview of how these policies are adding complexities to manufacturers and retailers broadly. In part two of our series, we’ll focus on how the new tariffs are impacting demand planners. We’ll explore how tariffs are disrupting the delicate balance of supply and demand and why AI infused demand forecasting is indispensable for modern planners.
Why Tariffs Matter for Demand Planning
Tariffs act as taxes on imported goods, often making those goods more expensive to purchase. While they’re primarily tools of international trade policy, their ripple effects extend to demand planning by affecting costs, lead times, and, ultimately, consumer preferences.
Here’s how tariffs create challenges for demand planning:
- Volatility in Costs: Tariffs can dramatically increase the cost of raw materials or finished goods. For instance, when tariffs on Mexican produce were introduced, grocery giants and restaurants alike faced higher prices on fruits and vegetables, which inevitably impacted shelf and menu prices. Companies with more products coming from tariffed countries are going to be impacted the most. For example, about 55% and 20% of Best Buy’s products sourced from China and Mexico, respectively.
- Uncertainty in Supply Chains: Tariffs cause disruptions in global supply chains, adding unpredictability to lead times. For demand planners, this means adjusting supply estimates quickly to avoid stock outs or overstocking.
- Changing Consumer Behavior: Higher costs may steer consumers toward alternative products. For example, a toy company like Mattel may raise product prices to absorb tariff costs, potentially causing consumers to shift toward competing brands or simply want to purchase less of Mattel products.
Demand planning under tariffs is no longer just about estimating quantities — it’s about anticipating dramatic changes caused by economic disruptions, and then quickly building data-driven recommendations for your next steps.
How Tariffs Are Disrupting Demand Planning
Unpredictable Market Demand Signals
Tariffs create waves of unpredictability in demand. For example, the U.S. auto industry faces uncertainty as new tariffs on imports from Canada and Mexico are set to increase prices and potentially dampen consumer demand. Tariffs are expected to drive up costs for vehicles and auto parts by anywhere from $4,000 to $12,500, depending on the vehicle’s type, engine, and country of origin.
The expected price hikes are particularly pronounced for U.S. car brands like Ford and General Motors, as well as foreign automakers like Toyota, Honda, Audi, and BMW, all of which have significant production in North America.
Demand planners are now tasked with decoding increasingly volatile demand signals that emerge from these tariff-induced shifts. Relying solely on historical data is no longer sufficient.
With car prices set to increase, perhaps that orange racing stripe and those extra cupholders will have to wait.
Pricing and Promotion Challenges
As we’ll cover in an upcoming blog in this series about inventory, the 2025 tariffs are driving manufacturers and retailers to stockpile inventory in anticipation of higher costs and supply chain disruptions. However, actual consumer demand remains uncertain. As a result, companies risk overstocking on materials, components, and finished goods they may not need, creating financial and operational challenges, like warehousing costs and running out of warehousing space.
To correct for this excess, manufacturers and retailers will likely turn to promotions and discounting to offload surplus inventory. This reactive approach puts pressure on demand planners, who must navigate unpredictable shifts in purchasing behavior while balancing inventory levels. The challenge lies in distinguishing real demand from stockpiling-driven spikes, requiring more dynamic forecasting and adaptive pricing strategies to avoid margin erosion.
Regional Market Shifts in Demand Patterns
Tariffs also reshape demand across regions or categories. The retaliatory ban on U.S. alcohol imports by Ontario saw Canadian markets pivot to domestic spirits, creating category-specific changes in demand. Such shifts require demand planners to be proactive in identifying trends and adjusting forecasts accordingly. In this case, any demand plan that included Ontario as a market must be updated to reflect the loss of sales. The shift in demand requires recalibrating forecasts, adjusting distribution strategies, and potentially reallocating inventory to other regions. Best of luck to the demand planners out there.
The AI-Driven Response: How Demand Planning Teams Can Adapt
Modern challenges require modern solutions. The integration of AI in demand planning has emerged as a silver lining for businesses navigating tariff-induced complexities. AI tools enable demand planners to manage uncertainty, refine forecasts, and optimize decisions faster and more accurately. Here’s how:
Demand Sensing and Forecast Adjustments
AI-supported demand sensing leverages data from various sources — including tariffs, economic indicators, and even consumer sentiment — to refine demand forecasts. Non-traditional data inputs like weather trends can also play a role in enhancing accuracy.
For instance, AI can analyze how a tariff-related increase in produce costs might affect consumers. Demand planners can then use this insight to tweak their forecasts, adjust inventory levels, and reduce costs. Fender, a leading music equipment brand, used Alteryx to incorporate external data into its predictive demand models. This resulted in more accurate forecasts that aligned with real-time market shifts.
Dynamic Pricing Strategies
With AI-driven scenario modeling, businesses can test price elasticity and evaluate how different pricing or promotional strategies might impact demand. This allows companies to remain competitive despite external pressures like tariffs.
For example, using AI to simulate various price points, retailers can identify the sweet spot that retains customers while covering added costs. Similarly, manufacturers can use AI and machine learning to detect shifting regional demand patterns, enabling proactive adjustments to production and distribution plans.
Demand-Driven Production Planning
AI offers granular insights into manufacturing needs, enabling demand-driven production planning. By aligning production schedules with demand patterns influenced by tariffs, businesses can avoid costly overproduction or stock shortages.
How Alteryx Streamlines Demand Forecasting
AI solutions like Alteryx are the secret ingredient many businesses are leveraging to revolutionize demand planning and forecasting. By integrating advanced technologies, Alteryx empowers demand planning teams to make smarter, data-driven decisions.
Rapid Data Preparation
Alteryx excels at enriching internal datasets (e.g., sales history, inventory levels) with external data sources like tariff changes or market trends. This creates holistic demand forecasts that account for both traditional and non-traditional variables.
Automated Forecast Updates
One of the most time-consuming tasks for demand planners is manually adjusting forecasts. Alteryx automates these workflows, allowing teams to adapt more efficiently to sudden changes, such as a new tariff announcement.
AI-Supported Insights
Alteryx offers AI-supported analytics that help teams identify and predict demand shifts caused by tariffs. This proactivity ensures supply chains remain agile, even in volatile economic environments.
Alteryx’s Solution for Demand Planning highlights five ways Alteryx improves demand planning.
Build Resilient Demand Planning in a Volatile World
The uncertainty introduced by the new tariffs underscores the need for dynamic, technology-driven demand planning. With traditional methods struggling to keep up, AI-supported tools like Alteryx are proving essential for businesses aiming to maintain agility and competitiveness.
Whether you’re managing erratic demand signals, optimizing pricing strategies, or aligning production with shifting patterns, AI is your ally in navigating these challenges.