Designing Supply Chains for a Fragmented, War‑Shocked World
Resilience used to mean more warehouses, more stock and more suppliers. That world is largely over. In a trading system where tariffs, energy flows and payment rails are closely connected with war in the Middle East and great-power rivalry, resilience increasingly means the ability to change course quickly when the route, the currency or the politics change.
Photo by José Zorobabeel Rivera: https://www.pexels.com/photo/rusty-cannon-overlooking-mazatlan-coastline-36739209/
One survey of nearly 300 listed companies reported that average inventories rose about 11 per cent between 2018 and 2021, as actors sought to protect themselves by holding more stock. The same research found that 81 per cent of supply chain leaders had introduced dual sourcing in the previous year (up from just over half in 2020), and 44 per cent had built more regional networks (up from a quarter in 2020). This evidence suggests that companies are not abandoning efficiency but are adding more choice into how their supply chains run.
Other surveys point in the same direction. One global operations survey indicates that more than four out of five chief executives and chief operating officers plan to bring supply chains closer to their main markets, and almost two-thirds say they are already investing in mixed offshore and near-home production. In the US, a separate survey of manufacturing executives reports that nine in ten have considered reshoring or near-shoring, and roughly half have already moved some production. Taken together, these findings support the view that leaders are not just buying capacity; they are paying for options.
The external context helps explain this behaviour. Energy and shipping routes through the Middle East sit at the intersection of conflict, sanctions and great-power rivalry, as recent disruptions to shipping and insurance have illustrated. When a regional flare-up closes a strait, lengthens sailing times, raises insurance premia or triggers new sanctions, companies can quickly discover how exposed they are to a single route or jurisdiction.
At the same time, the World Trade Organization has reduced its 2023 merchandise-trade growth forecast to 0.8 per cent from 1.7 per cent, citing factors including war, inflation and policy uncertainty, and has warned of “signs of trade fragmentation linked to global tensions”, while also noting that full de‑globalisation has not occurred. The WTO further reports that the share of intermediate goods in world trade, a rough measure of longer supply chains, has fallen compared with recent years.
Central banks have raised similar concerns in their analytical work. A study prepared within the European System of Central Banks simulates a world split into a US‑centred “west” and a China‑centred “east” for certain key products and estimates that partial decoupling of this sort could, in adverse scenarios, reduce global GDP by about 6 per cent. The same work notes company-level survey evidence from Germany, Italy and Spain indicating that between roughly one-sixth and one-third of manufacturers rely on China for crucial inputs that would be hard to replace. These figures underscore that discussions of “friend-shoring” are grounded in concrete concentration risks. Although, I advocate “right-shoring”.
In such a world, capacity in the wrong place, financed in the wrong currency, can in some circumstances turn from asset to liability quickly. The capability that matters most is optionality: being able to reroute flows, shift production and adjust contract currencies when circumstances change.
The experience of the Covid‑19 pandemic illustrates this. Research on healthcare supply chains during the personal protective equipment crisis reached the following conclusion: resilience was associated with a combination of agility, flexibility, collaboration and redundancy, with collaboration identified as a particularly key mechanism.
Findings from operations research are consistent with these observations. Studies of network design show that while backup facilities and alternative routes increase costs, appropriately chosen resilience measures can reduce expected disruption losses enough to improve overall performance. Analyses of flexible production – for example, the ability to switch between plants or suppliers – treat such flexibility as a “real option” that can raise expected returns and reduce downside risk when future conditions are uncertain. In a world of overlapping geopolitical, climate and financial shocks, it is reasonable to infer that these options become more valuable, not less.
Designing for optionality, therefore, starts with understanding where the risks lie. This typically involves mapping exposure to currencies, platforms and jurisdictions across the entire supply chain network, and then building practical alternatives rather than relying on paper plans. Examples from industry show firms spreading suppliers across blocs, regionalising critical production and holding stock where this most improves flexibility. Governance is just as important as network design: trade, treasury, risk and operations functions need a shared view of exposures, pre-agreed “disruption compacts” with key partners, and digital systems that make switching route or currency operationally feasible rather than theoretical.
Public policy is beginning to reflect this logic. The European Union, for instance, now advocates: diversifying suppliers, technologies and jurisdictions while keeping markets open. Something I had wished for during COVID-19. Analytical work and official documents suggest that other middle powers are pursuing similar strategies, seeking to preserve openness while reducing one-way dependence.
The question for company boards is increasingly whether the absence of optionality is an acceptable risk. Survey and case-study evidence from recent crises indicates that actors with diversified suppliers, regional production where appropriate and modest buffers have tended to recover faster and, in some cases, to gain market share while others stalled. For governments, every restriction imposed in the name of security requires businesses to redraw maps and contracts. Clear and predictable rules tend to increase the value of private options; abrupt and poorly coordinated measures tend to undermine them.
Resilience is no longer simply a matter of holding more assets; it is the capacity to choose under pressure. In an age where war in the Middle East and Ukraine can reroute ships, reshape sanctions and ripple across currencies in days, the supply chains best placed to cope will not be the largest or the leanest, but those with the widest menu of credible choice – and the governance to use these options when it is needed.