Corporations are devoting additional resources to build ever-more resilient global supply chains to combat changes in health and trade policies as well as geopolitical disruptions they think will occur with increasing regularity, supply chain specialists said.

The Trump administration's May 1 threat to raise tariffs by 25% on European vehicles follows the February start of the Iran war and an April administration proclamation affecting the importation of aluminum and copper. Bain & Company partner Dheera Anand is among those who said companies now must plan for regularly occurring similar shocks and fortify supply chains against them in new ways.

"This isn't one and done. This is the world we live in. And I don't see it settling down anytime soon," Christopher McCarney, KPMG U.S. principal, supply chain and operations, said in an interview. "There's always going to be another event, and the best time to modernize is right now," he said.

Indeed, the “foundational rules for risk management” have been fundamentally altered, with the shakeup of U.S. policy last year just the latest chapter of “perma-crisis” period that has been underway since the COVID-19 pandemic, Richard Chambers, senior advisor at AuditBoard, a provider of audit management software, previously told CFO Dive. 

Big supply chain changes afoot

Sustained supply chain uncertainty has directly impacted corporate management practices. A majority of respondents to a May 1 KPMG survey said their organizations now hold regular C-suite leadership strategic meetings on supply chain developments, and 73% of businesses are planning a comprehensive transformation of their supply chain operating model within the next 36 months. A top transformation priority: risk management and resiliency building, the survey said.

Corporate priorities have changed to incorporate a growing need to build in buffers, which can drive up costs, into supply chains to guard against unforeseen supply-chain shocks, McCarney said. "I think there's a willingness to pay for resilience. I'll put it that way," he said. 

Organizations are also broadening the number and types of workers involved in supply chain risk management.

"There's a joint responsibility for risk management throughout the company," supply chain specialist at Ohio’s Miami University Lisa M. Ellram said in an interview. "The people who are more on the front lines, like in supply chain management, they're the ones who potentially get the early warnings that will allow companies to respond more quickly" to supply-chain disruptions, she said.

"Companies are very much more focused on anticipating, being prepared for risks and anticipating them," Ellram said.

Sumit Dutta, U.S. principal of supply chain and operations at Ernst & Young, said he sees many CFOs working closely with the chief supply chain officer because there is a need to understand the financial impact of events.

Cost is no longer king

Supply chains are complex networks of suppliers, manufacturers, producers, distributors, and retailers requiring companies to satisfy customer demand by adjusting raw material sourcing, manufacturing processes, logistics, and product or services returns and refunds with precision.

Before supply chains were severely disrupted by the COVID-19 pandemic, companies cut costs by constructing lean supply chains, many times embracing just-in-time inventories.

But the pandemic underscored the importance of resiliency and the interdependencies of different links in supply chains. It also heightened the need for broader risk-management analyses of companies' supply-chain practices. In 2022 a Protiviti study found that 45% of CFOs and VPs of finance were starting to move away from efficiency-based supply chain models to revenue assurance models, CFO Dive previously reported. 

The pandemic exposed that there was not enough flexibility built into supply chains to absorb shocks to the system, said Anand, who advises global companies on supply chain transformation.

"You took one block out and everything came falling down because there wasn't enough risk mitigation, resilience, or agility" built into supply chains, she said. "I think the trifecta of cost, cash, and service has now become a four legged stool of cost, cash, service, and resilience," she said.

Just in time? Sometimes. 

Despite the push for resiliency, just-in-time processes haven't been entirely discarded by companies, but they now are scrutinized for their flexibility, the specialists said. Companies now realize some links in supply chains demand redundancies, like multiple vendors or larger inventories. This increases costs, but not doing so risks supply chain disruptions, they said.

"I think companies now recognize that they have to look at cost in sync with how resilient their supply chain is to all these stresses," Dutta said. "Cost has not gone out of the picture. But now people understand it is cost along with resiliency, agility, and sustainability," he said.

 "Use just-in-time for some things but not others. It's a mix. Do it in a disciplined way,"  Duke University Fuqua School of Business professor Jeannette Song agreed in an interview. "It still cuts your cost, but you only apply it to things that have a relatively stable supply," she said.

Anand too characterized the current approach as more nuanced. "There isn't really a one-size-fit-all approach to supply chain management anymore," he said.