How distributors with federal contracts can cope in an era of tariffs and DOGE

Edicts have come one after another from the Trump White House and the new, Elon Musk-led Department of Government Efficiency (DOGE). Seldom in recent memory have policies originating inside the Beltway reverberated as loudly or generated as much uncertainty across industries as the recent flurry of executive orders aimed at eliminating perceived waste in the U.S. government’s procurement practices.

Few sectors are feeling that uncertainty as acutely as wholesale distributors, leaving those that do business with Uncle Sam to wonder how best to reckon with the contractual delays, contract terminations, and other destabilizing factors that now seem inevitable in the new climate of federal fiscal austerity.

The impact of tariffs on distributors with federal contracts is far ranging, requiring new strategies and quick action.

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Dealing with DC: Impact of tariffs on distributors

A tariff on imported automobiles and auto parts and an executive order to consolidate federal procurement of common goods and services within the U.S. General Services Administration (GSA) were the latest in a steady stream of Trump Administration policies likely to impact the many wholesale distributors that work with the federal government directly or indirectly, as contractors or subcontractors.

Tariffs and measures like these, along with the realities of competing in a low-margin business, are putting added pressure on distributors to:

1. Identify contracts and orders that the federal policy upheaval has put at risk.
2. Get a handle on the potential impacts of tariffs (on inflation, interest rates, etc.), federal contract consolidation, adjustments, and cancellations, then identify ways to mitigate those impacts.
3. Uncover areas of opportunity to develop new revenue streams, capture new operational efficiencies, and build more resiliency and flexibility into supply chains—then mobilize quickly to pursue them.
4. Make sure they and their suppliers comply with federal regulations.

For wholesale distributors that rely on the U.S. government as a significant revenue source, either directly or indirectly, meeting these challenges is going to require on-point strategic thinking, along with a more intelligent, nimble approach to operating their business and managing their supply chains.

Digital technology has a key role to play in that regard, for its ability to help distributors leverage data across the business and supply chain so they can adapt on the fly to changing market dynamics, economic conditions, and of course, new government policies.

Tariff distributor strategy: More intelligent and flexible procurement

Distributors will need to adjust procurement strategies in light of new tariffs and other federal policies. Distributors that have contracts with Uncle Sam for automotive parts, for example, will need to identify and lean more heavily on sources of domestically made products in response to the new tariff on foreign parts.

With products on which tariffs are about to be imposed, they could also consider stockpiling inventory of those products before the tariffs take hold to take advantage of lower pricing.

Artificial intelligence can help them maximize maneuvers like this by identifying domestic sources to substitute for overseas sources, and to pinpoint products to stockpile, such as fast-sellers that originate in countries deemed at-risk for tariffs.

Intelligent analytics and modeling tools also can help distributors assess inventory and capacity across their warehouse networks, and evaluate suppliers based on their ability to expedite shipments and provide bulk discounts.

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Increased competition, e-commerce growth, rising customer expectations, and new technologies have put pressure on distributors to transform their business to remain competitive.

Build diversity and flexibility into the supply chain

Already a top priority for wholesale distributors since the pandemic, building a diverse and flexible supply chain is even more critical now to deal with the impact of tariffs on distributors. From a competitive standpoint, the wave of new federal policies means there’s even less margin for error in terms of pricing and reliability.

To win federal business as a contractor or subcontractor, companies must find ways to leverage their supply chains to gain a pricing advantage in their bids. And they must be able to back that with reliability.

All of which puts a premium on efficient supply chain management. Here’s another area where AI and modeling and analytics tools can help by identifying and scoring current and potential suppliers based on certain business parameters, for example, and by identifying optimal sourcing pathways, taking into account tariffs, etc.

Distributor networks, new models, pricing

To get a piece of what could well be a shrinking government contracting pie, wholesale distributors will need to get creative. That includes taking part in supplier business networks such as those that serve the U.S. AbilityOne Commission and GSA.

Digital technology enables members of networks like these to connect, share information in real-time, deal with disruptions, and collaboratively fulfill their contractual responsibilities to the federal government.

In addition to joining or starting a distributor network, here are other steps distributors can take to deal with 2025 tariffs and policies:

• Identify and develop new business models and revenue streams.  If the expected drop-off in business from the federal government materializes, distributors will need to fill that void by cultivating new markets and revenue sources. That could include developing value-added services around kitting, aftermarket offerings, and data analytics that give customers extra competitive insight, for example
• Optimize pricing. Federal contract consolidation will require distributors to analyze pricing structures and strategies to dial in their contractual pricing. They’ll need intelligent modeling tools to do so.
• Ensure compliance. An increasingly competitive government contracting landscape dials up the pressure on distributors and their suppliers to make sure they comply with the many regulatory requirements that come with government contracts.

With more tariffs, executive orders and austerity measures on the horizon for 2025 and beyond, taking steps like these is a must to manage the new and escalating risks wholesale distributors face in the second Trump term.