Balancing risk and efficiency: Strategies for global supply chain realignment

From the March-April 2025 edition of Supply Chain Management Review.

March-April 2025

Inside this month's issue of Supply Chain Management Review, we look at the complicated process of managing parts for military aircraft and what private sector supply chain managers can learn. Plus, understanding…

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The COVID-19 pandemic, ongoing war, and inflation brought uncertainty to supply chains in the last three years (BBC News, 2021). The United States released a 100-day review to assess the vulnerabilities within supply chains of four critical product groups (semiconductor manufacturing and advanced packaging; large capacity batteries; critical minerals and materials; pharmaceuticals and active pharmaceutical ingredients).

This report was released in June 2021, and since then, significant geopolitical and climate disturbances have happened worldwide. The major ones have been:

• the start of the Russia-Ukraine war and subsequent fallout effects across Europe;
• easing of China’s Zero-COVID lockdown policy;
• restrictions to the export of advanced semiconductor chips to China; and
• “bomb cyclone” in the United States.

Even though the U.S. government released the report focusing on its geography, the challenges and recommendations mentioned apply to other countries across the globe in varying degrees and for different types of products.

Why it matters

The challenges mentioned in the report have been relatively well-known to businesses with complex global supply chains. However, taking concrete actions to reduce supply chain vulnerabilities would require the CXOs to align their expectations to ground realities. The U.S. government reports (100-day Review and the subsequent ones released by various U.S. agencies) do not provide detailed guidelines to navigate this complexity.

Add to that the additional complexity brought about due to the recent changes across the world that have led to the start of realignment in global supply chains across various industries (Cohen
et al., 2021).

In this article, we present critical actions that an organization should immediately take to manage the realignment of supply chains while reducing supply chain vulnerabilities and also adhering to the recommendations provided by various government agencies worldwide.

Background

U.S. 100-day supply chain review. It was the first time any government had strongly emphasized reviewing critical supply chains and highlighting the importance of bridging the vulnerabilities. The top two challenges highlighted in the report are:

1. the concentration of the supply chain in a particular geographical area; and
2. lack of domestic manufacturing capabilities.

An interesting factor in the report was the frequency with which the names of different countries were mentioned. China appeared much more than all other countries combined. The table shows the significant variation in the frequency. The top four recommendations mentioned in the report are:

1. strengthen the domestic manufacturing ecosystem using government funding;
2. increase global supply chain transparency and collaboration among allies;
3. increase inventory of critical products; and
4. build a strong talent pipeline.

 

Global risk report

The top 10 global risks mentioned in the annual report produced by the World Economic Forum (WEF) are gradually moving in a direction where these risks will have a direct/indirect impact on the global supply chains. Due to the large contact surface area, here is a summary of how these risks (divided into five significant buckets) can affect supply chains.

Major ground realities to be revisited by organizational leaders

Complete decoupling of U.S./China supply chains is next to impossible. Private organizations have consistently worked with the single aim of improving profits for their shareholders. The globalization of supply chains has occurred due to the inherent benefits of targeted value additions at specific locations across the globe and the subsequent positive impact on the bottom line.

Global supply chains run deep and have gradually honed their operational efficiency and effectiveness in the last five decades with the help of market forces and local government support. Various tiers of suppliers (beyond tier 5) in a supply chain are hidden from large customers and the end users of products.

 

Another element behind supply chain alignment is the highly polluting manufacturing process for certain products (rare earth refining) and the laxity in environmental regulations provided by specific regions.

Building a parallel supply chain with similar cost advantage and the ease of operations that existing supply chains provide would not be viable for all major industries. Here is a non-exhaustive list of variables that should be available for realignment.

• Land for manufacturing facilities.
• Resources such as water and electricity in viable costs.
• Favorable government policies.
• Inland transport infrastructure.
• Port infrastructure.
• Talent pipeline with technical and language skills.
• Supplier ecosystem tier 2 and deeper supply chains.
• Intellectual property restrictions.
• Cultural alignment for delivery excellence and transparency.
• Cost-effective workforce.
• Environmental regulations.

Recent examples

• Apple is in the process of diversifying its iPhone supply chain manufacturing outside of China. However, according to WSJ research, out of 180 suppliers, 150 are still located in China, while the supplier base in Vietnam and India is limited to 26 and 11, respectively.
• China refines 80% of the world’s cobalt and 60% of the world’s lithium, the two core inputs for high-capacity batteries.
• China currently supplies more than 80% of the photovoltaic modules to the world with over $50 billion in new investment.

Consistent push to increase collaboration will still leave vulnerabilities in the supply chains or open new vulnerabilities. Collaboration among allies may foster cooperation, yet it does not eliminate the imperative for individual nations to prioritize their national interests, often superseding the interests of their partners. Moreover, establishing multiple ecosystems for crucial supply chains proves economically unfeasible. Over time, the pursuit of cost and efficiency gains inevitably drives the consolidation of production in specific geographic regions, thereby exposing supply chains to heightened vulnerabilities.

These concentrations may arise due to various factors outlined earlier. Two notable instances from the past year highlight the repercussions of such realignments, further exacerbating vulnerabilities within the supply chain. These examples are reminders of the intricate interdependencies and risks inherent in contemporary global trade dynamics.

• Due to the Russia-Ukraine war, Germany found it necessary to reduce its reliance on Russian LNG. Consequently, this shift has increased dependence on LNG imports from the U.S.
• Following Malaysia’s ban on chicken exports, Singapore experienced a surge in prices for its national dish, dubbed the “Chicken-rice crisis” by the media. This occurred despite Malaysia previously supplying approximately 34% of the chicken market. In response, Singapore diversified its sourcing, procuring chicken from 25 different countries, with Indonesia being a recent addition.     

 

However, the expansion of sourcing to numerous countries has also widened the surface area of the supply chain, rendering it more susceptible to disruptions.

Increasing the stockpile of critical products, a.k.a. safety stock inventory, increases working capital requirements for the organization. Although maintaining a substantial inventory offers direct advantages in mitigating supply chain disruptions, implementing this strategy can prove challenging for companies. The heightened need for working capital and constraints imposed by shelf-life considerations inevitably escalate operating costs, a factor that may not sit well with stakeholders primarily concerned with profitability. Consequently, there is a pressing need to capitalize on the transformative capabilities of digitization to foster transparency throughout various supply chain tiers, as emphasized by Zhang et al. (2020).

Disruptions are the integral elements of supply chains

According to research conducted by the World Economic Forum and other reputable agencies, it is increasingly apparent that the effects of climate change will exacerbate the frequency of black swan events—unexpected and extreme occurrences with profound implications. These events can encompass a wide range of disruptions, from natural disasters to geopolitical upheavals, all of which have the potential to significantly disrupt global supply chains.

Recommended strategies for organizational/supply chain leaders

1.  Exclusive team for creative risk scenario planning.

Setting up a dedicated cross-functional team under a CXO with unique skill sets to improve supply chain resilience. Again, it will be a small team setup using internal resources. We should be looking for individuals with the following skill sets and experience:

• multi-domain experience (supply chain/finance/manufacturing/technology hardware, data analytics, digital platforms);
• knack on building creative risk scenarios;
• high ownership mindset;
• self-starter;
• ability to “get work done;” and
• experience in organizational change management.

Because the supply chain disruptions are not going away, organizations can only stay ahead of competitors by building resilience. We have seen some recent examples of failures, and similar situations will continue to occur in the future.

• Failure of the outdated scheduling system was highlighted as one of the reasons for the massive chaos at Southwest Airlines during the last week of December 2022
• An incorrect database file was held responsible for the Federal Aviation Administration pilot alert system outage that stopped all commercial flights in the U.S. for a few hours on Wednesday, Jan. 11, 2023.

Such a risk assessment team can identify different kinds of scenarios that can help build risk mitigation strategies. That helps create the mindset of risk mitigation planning, which would be helpful with any real-world system that hits the organization.

2. Ring fence key talented employees who have domain experience and are gradually building technology and data analytics skills.

Building a rewards & recognition policy targeted toward individuals with domain experience and interest in building technology and data analytics capabilities is all the more important now than ever.  This policy is essential to target employees with 3 to 12 years of experience (mid-level). Regular performance appraisal cannot be used to segregate such individuals. The assessment process should focus on traits such as growth mindset, grit, self-starter, and adaptability to identify them.

According to a senior VP of supply chain at a Lifesciences MNC, the biggest bottleneck in their supply chain transformation journey has been the “availability of individuals with necessary skills.”

Interestingly, with the abundance of free online resources, these traits could be identified by asking for clear examples for the following questions:

• Did they proactively register & complete any data engineering, analytics, change management, negotiation, or technical courses within the past two years?
• Have they proactively learned any new technical skill and used it to build specific tools, improve a process, or improve the quality of their work?
• For the completed courses, was it required to complete consistent weekly assignments or build a project? Was this work completed individually or while working with an external team?
• Did the individual take up diverse roles or proactively request involvement in projects outside his educational or previous work experience and required rapidly learning new skills?

According to the 2023 Korn Ferry Supply Chain Talent Study, companies are having challenges filling roles requiring three skills: end-to-end supply chain knowledge (57%), supply chain transformation (43%), data analysis & reporting (41%).

An interesting way to keep track of the skill shortage is to check the skills appearing repeatedly in the positions open within consulting companies. This technique will help organizational leadership identify their talented employees. It’s easier and more cost-effective to retain talented employees than to hire new ones.

3. Adopting chaos engineering within organization.

Chaos engineering deliberately introduces controlled failures or uncertainty into systems to test their resilience and identify weaknesses. The objective is to enhance the system’s capacity to manage real-world failures and unexpected events, aligning supply chains with business needs (Lee, 2021). It is commonly facilitated by simulating failures or disruptions. This practice also aids in identifying bottlenecks and other areas of the system that require improvement (Akin Ates, 2022).

Companies such as Netflix (Chaos Monkey) and AWS have embraced this concept to improve system resiliency and response reliability. AWS has also built this as a service called Fault Injection Simulator.

There have been instances of chaos engineering being employed to bolster resilience in technology architecture and supply chains. However, from a CEO’s perspective, this concept can be applied across the entire business organization. It can be likened to the emergency preparedness planning and tabletop exercises conducted by the military.

H-E-B, a renowned Texas retailer, has won multiple praises for its emergency preparedness during the pandemic and other natural disasters faced by Texas over the last 20 years. Some of the critical features of H-E-B that are different from other companies are as follows.

• A dedicated full-time emergency preparedness team led by a senior executive
• They built their emergency preparedness plan in 2005 during the threat of H5N1. It was revised in 2009 during H1N1.
• During the pandemic, the emergency preparedness tabletop exercises were started as early as January 2020 after receiving news from China.
• They also took insights from Chinese retailers whohad considerable experience in managing the crisis in the early days of the outbreak.

However, despite all the preparedness, they could not anticipate the toilet paper panic buying. That shows that despite rigorous planning, the unpredictability of consumer behavior may affect supply chains significantly.

4. SWAT team to start implementing long-term data strategy.

The time to take methodical and careful steps to build strategy and patient experimentation is over. Most organizations take time to select specific use cases and build a business case for implementation.

Mandating a leader to “experiment fast, fail fast” to identify use cases and rapidly build specific proof of concepts (POCs) is necessary to expedite the progress. Organizational inertia can be shifted by showcasing successful POCs and minimum viable products in a defined period and it is intertwined with their ordering and inventory policies (Xu et al, 2022).

According to a director of data analytics at a North American manufacturer, despite accepting the benefits of data analytics & AI toward the growth of business revenues, the adoption rate has been relatively slow due to a lack of a long-term data strategy. The teams still use spreadsheets to manage business operations and expect to continue to do so in the future.

Organizations sometimes hire external consultants to overcome this inertia while paying top dollar. A lot of it can be achieved internally by leveraging SWAT teams.

• A large North American pharmaceutical organization with a global presence has increased its pace of hiring supply chain professionals with deep data, analytics, and digital experience since 2020.
• Another North American organization has been evaluating the correct supply chain planning software to be implemented for the last three years.

This leader should have the following traits to be successful in this position.

• Strong stakeholder management experience and ability to influence leadership.
• Political climate assessment & change management experience.
• The knack for taking and facilitating timely decisions.
• Timely delivery of various programs: (getting things done).
• High ownership mindset.

5. Changing recruitment requirements for middle-level leaders.

While it is a known fact that experienced leaders across multiple domains can add more value to the business, the recruitment processes still require individuals in mid-level positions to be working in the same domain for 10 to 15 years. The recruitment stage rejects any external candidates not meeting the minimum experience. These rules are usually relaxed for internal candidates known to the hiring manager or teams.

When there is already a shortage of individuals with end-to-end supply chain and transformation program experience, it might be helpful to focus on changing such recruitment requirements. Some specific actions could be:

• showcasing (using profiles of company leaders) how diverse experience has been helpful to their career and organization;
• removing minimum “number of years” of requirements for non-regulated roles;
• analyzing profiles of the rejected candidates to understand the reasons behind the rejections; and
• increasing weightage on adaptability, achievements, and references, requiring an update to the application tracking system (ATS) search functionalities.

6. Understanding the regional culture and motivational forces.

Regional culture and customs can play a significant role in achieving the same level of efficiency and output as before realignment (Seuring et al., 2022)

A like-to-like factory with the same processes and number of skilled employees may still achieve dramatically different results. During supply chain realignments, companies trying to move into new regions endeavor to partner with a local partner for on-ground support.

Apart from this, it is also an excellent option to explore different ways of cultural immersion, such as watching essential regional movies, reading books by regional authors, and visiting locations where their new workforce is staying or eating. Some of this experience cannot be achieved by talking to a few regional leaders or attending online/instructor-led courses. One such recent example is the troubles faced by Apple while trying to diversify its iPhone manufacturing from China to India. Adapting the processes and ways to the regional context can deliver far better results. However, there will be an acceptable delay in achieving a similar output level. Moreover, adapting the ways to the regional customs may lead to higher efficiency in the long run.

Conclusion

Multiple research reports have confirmed that organizations ahead of the curve in building resilience will benefit from future disruptions. The time to take fast and decisive actions is now.

The team required to take such actions requires unique skills and mindset to achieve the required results. Based on the action plan and evidence above, you do not require external consultants to build these capabilities. A small, targeted team can start creating this change with the support of the right leader. Along with that, a practical recruitment process and acceptability of regional differences can go a long way in achieving desired business results.

References

Akın Ateş, M., Suurmond, R., Luzzini, D., & Krause, D. (2022). Order from chaos: A meta-analysis of supply chain complexity and firm performance. Journal of Supply Chain Management, 58(1), 3-30.

BBC News. (2022). Covid-19 pandemic is over in the US - Joe Biden. Available at: https://www.bbc.com/news/world-us-canada-62959089.

Cohen, M. A., & Kouvelis, P. (2021). Revisit of AAA excellence of global value chains: Robustness, resilience, and realignment. Production and Operations Management, 30(3), 633-643.

Lee, H. L. (2021). The new AAA supply chain. Management and Business Review, 1(1). 173-176

Seuring, S., Brandenburg, M., Sauer, P. C., Schünemann, D. S., Warasthe, R., Aman, S., ... & Khalid, R. U. (2022). Comparing regions globally: impacts of COVID-19 on supply chains–a Delphi study. International Journal of Operations & Production Management, 42(8), 1077-1108.

Xu, X., Sethi, S. P., Chung, S. H., & Choi, T. M. (2023). Reforming global supply chain management under pandemics: The GREAT-3Rs framework. Production and Operations Management, 32(2), 524-546.

Zhang, F., Wu, X., Tang, C. S., Feng, T., & Dai, Y. (2020). Evolution of operations management research: From managing flows to building capabilities. Production and Operations Management, 29(10), 2219-2229.

About the authors

V G Venkatesh is a professor of Supply Chain Management in EM Normandie Business School, France and a member faculty of EU- Circular Economy Chair. He specializes in supplier networks, procurement, global management, and sustainability and can be reached at [email protected].

Ankur Rathi is currently with EPAM systems, Canada with the global experience in E2E supply chain, product development. He has led 30+ projects in digital supply chain transformation involving emerging technologies and can be reached at [email protected].

Peter Shi is a tenured faculty member of Macquarie Business School, Macquarie University, a Chartered Fellow of CILT, Head of Supply Chain Management Specialisation, and Tianjin Visiting Distinguished Professor. His research focuses on sustainability and supply chain management. He can be reached at [email protected].

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