Navigating volatility: Practical considerations for manufacturers

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In a volatile operating environment, the path to stability must evolve.

The past few years have shown that waiting for risk conditions to stabilize is not a viable strategy for many manufacturers. With volatility now hard-wired into most manufacturers’ operating environment, senior leaders should consider shifting their focus from trying to eliminate uncertainty to creating pockets of stability to protect their most critical assets and capabilities.

A reset, not a retreat

A recent example of the uncertainty firms face is the shift in tariff policy. Earlier this year, the US Supreme Court struck down the key authority used by the White House to implement many of its tariffs, ruling that it requires congressional authorization.

The administration responded quickly. Instead of retreating, the White House moved to impose an ‘import surcharge’ that retains tariffs as a pillar of its trade strategy. This has already led to more than 2,000 lawsuits being filed in the US Court of International Trade, with organizations large and small seeking refunds for tariffs already paid — over $130 billion by some estimates.

While numerous manufacturing companies are among the plaintiffs, the industry’s overall reaction has been one of reluctant acceptance and concern. There is general concern among industry leaders that the tariff landscape will not revert to pre-2025 conditions and that the latest disruptions could lead to increased volatility.

The impacts of uncertainty

Manufacturers are taking action to navigate this uncertain environment. War rooms that were set up months ago have been reactivated as firms sense-check assumptions and adjust supply decisions. Cross-functional teams are once again mapping exposure, recalculating landed costs, and exploring alternative sourcing.

Higher input costs can also squeeze margins. The US Chamber of Commerce has been clear that these costs fall directly on manufacturers and while some may pass these increases onto customers, others choose to absorb them. Either way, profitability is reduced, limiting firms’ ability to innovate, expand, and compete.

Supply chains are also being reshaped — but not through simple reshoring. Many manufacturers are exploring Foreign-Trade Zones and bonded warehouses to defer tariff costs. In some cases, partial reshoring has helped, yet wholesale repatriation is rarely practical or economically sound. Instead, supply chains may evolve through adaptation and restructuring. This year’s planned renegotiation of the US-Mexico-Canada Agreement (USMCA) will be critical, providing a potential early signal of whether future trade policy trends toward greater stability or further volatility.

Perhaps one of the most consequential impacts of the tariff turmoil is the delay in strategic investment decisions. Capital deployment, equipment purchases, and expansion plans may be on hold while firms contend with modeling new tariff exposures, analyzing price sensitivities, and assessing tax implications. Long term, this can threaten the innovation and competitiveness of American manufacturing.

Taking a balance sheet-first approach

Tensions across the Middle East are compounding matters. Beyond the tragic humanitarian costs, the recent military strikes have introduced additional risks to oil shipments and global trade routes. Disrupted trade lanes have again heightened the cost of rerouting and reassessing supply chains.

Ultimately, operational plans may have to evolve. But in capital-intensive, globally integrated industries like automotive and industrial equipment, volatility can affect the balance sheet more quickly than this evolution can happen. Cash flow, receivables, inventory valuation, and credit capacity are under immediate pressure, even as production systems are still adjusting.

The first focus for manufacturers should therefore be on their balance sheet and how they protect it against the crippling financial implications of a dynamic risk landscape. Tariffs themselves are not insurable, but that doesn’t mean leaders are powerless.

Sound risk transfer strategies can help stabilize finances

As they face a host of factors outside their control, risk transfer remains one area where manufacturing companies can gain a grip on the issues they face with the aim of creating vital stability on the balance sheet.

For example, property and contingent business interruption insurance can be used to address physical supply chain disruptions, while trade credit insurance may provide protection against non-payment from domestic and international buyers. It can also support receivable financing, which can be an important stabilizer for cash flow in unpredictable conditions.

Likewise, manufacturers should re-evaluate their cargo and inventory coverage and surety capacity. Amid ongoing trade disruptions, manufacturers may need to consider increasing marine cargo and warehouse limits to reflect higher goods valuations, changing logistics patterns, and insufficiencies in customs bonds. Political risk insurance may provide protection against asset expropriation, currency inconvertibility, and political violence in certain trade corridors.

Gaining a measure of control

None of these tools prevents disruption from occurring, and firms cannot quell the perfect storm they face right now. This is not the time for a sit-back-and-wait strategy, and a silver bullet solution is unlikely. But that is precisely why manufacturers should focus their actions on what they can control.

While firms can’t change tariff policy, influence geopolitical events, or dictate how quickly regulations evolve, they can control the way they strengthen the risk foundations of their business. They can be targeted in identifying the pockets and processes that matter most. And they can build enough financial, operational, and leadership stability with the aim of preventing uncertainty from completely paralyzing decision-making.

Eliminating unpredictability is an impossible task. Instead, manufacturers should focus on finding a way to function successfully within it. When volatility is the operating environment, the certainty of their own actions, not the uncertainty of others’, must shape the path ahead.

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Navigating volatility: Practical considerations for manufacturers