Supply chain shocks fuel push for more resilience

The latest threat to global chipmakers is not a shortage of semiconductors, but of helium.

Since the Iran war disrupted production in Qatar and threatened exports through the Strait of Hormuz, industrial groups have warned of a tightening of helium supplies that are critical to semiconductor manufacturing.

The disruption adds to a growing list of shocks that have forced companies to rethink the “just-in-time” supply chains that have underpinned global manufacturing for decades. From pandemics and wars to tariffs and energy crises, repeated disruptions have exposed the vulnerabilities of lean global supply chains built for efficiency and low cost.

The topic has become a focus for business school researchers, who in recent years have looked at how companies have tried to adjust to supply chain shocks, and which strategies have worked best.

They say businesses are increasingly shifting towards more diversified and regionalised models, with greater redundancy, alternative suppliers and production networks designed to withstand disruption rather than simply minimise cost.

Richard Baldwin, professor of international economics at IMD Business School in Switzerland, argues that the shift began long before the outbreak of Covid-19 in 2020. “There is a clear retrenchment of trade in goods and it’s been going on since 2008,” he says.

Baldwin argues that the long expansion of offshoring has largely run its course, with companies no longer steadily shifting production from advanced economies to low-cost manufacturing hubs in the way they did during the peak globalisation era of the 1990s and 2000s.

The share of world manufacturing controlled by G7 economies fell from about two-thirds in the late 1990s to 38 per cent by the mid-2010s, according to Baldwin’s research, before largely stabilising as the rapid expansion of offshoring slowed.

Instead, he says companies are increasingly adopting more localised production models such as “China-for-China” and “US-for-US”, producing goods within, or closer to, major consumer markets.

Yet while politicians and executives have increasingly warned of “de-globalisation” as tariffs and geopolitical tensions disrupt trade flows, several academics argue that companies are reorganising rather than retreating from global trade.

“Globalisation is changing, but it is not disappearing,” says Beata Javorcik, chief economist at the European Bank for Reconstruction and Development and professor of economics at the University of Oxford.

Instead, she argues, trade and investment flows are being redirected. Research co-authored by Javorcik found that US companies responded to tariffs on China by shifting sourcing towards countries such as Vietnam and Mexico, while reducing dependence on any single supplier country overall.

“A few years ago Janet Yellen was talking about ‘friendshoring’ and we worried about the world breaking into two opposing blocs. I don’t think this is happening,” says Javorcik, referring to the former US Treasury secretary.

Supply-chain diversification across Asia is also increasingly being driven from within China itself, say academics.

Zhao Xiande, professor of operations and supply chain management at Ceibs business school in China, says “China plus one” strategies are no longer being driven only by Western multinationals seeking to reduce dependence on China by adding a second manufacturing hub nearby.

As global customers increasingly demand production spread across multiple countries, Zhao says many Chinese manufacturers are expanding into countries such as Vietnam, Thailand and Malaysia.

But researchers say reorganising supply chains is proving to be slower and more complex than many executives and policymakers initially expected. Companies cannot simply relocate production overnight, points out Carlos Rodríguez, professor of strategy and organisations at Incae Business School in Costa Rica.

There is growing interest in “nearshoring” in Latin America as US-based multinationals seek to reduce their dependence on China. But Rodríguez’s research found that companies rarely search globally and freely when revamping supply chains, instead tending to relocate within existing supplier networks and regions they already know well.

“You move to a country for cost, but you stay for the capability,” he says. Countries hoping to benefit from the shifting trade flows therefore need to offer more than low labour costs, he argues; skilled workers, reliable suppliers and stable business environments are all key.

But diversifying production across more countries and suppliers is also making supply chains more complex to monitor and manage.

David Simchi-Levi, professor of engineering systems at the Massachusetts Institute of Technology, says companies are increasingly investing in digital tools to map supply chains, identify hidden vulnerabilities across supplier networks and prepare contingency plans before disruptions hit.

“It’s not enough to use intuition and experience,” he says. “You need data and analytics.”

His work on supply-chain “stress tests” highlights how concepts such as “time-to-recover” (how long a supplier or facility takes to return to full operation after disruption) and “time-to-survive” (how long supply can continue to meet demand during disruption) are increasingly being used to measure resilience.

Simchi-Levi says resilience is therefore increasingly being treated as a competitive advantage rather than simply a defensive measure.

Indeed, companies are starting to use supply chains not just to respond faster to changing demand, but to accelerate product development and bring products to market more quickly, says Hau Lee, professor of operations, information and technology at Stanford Graduate School of Business.

Lee describes this as “ultra-agility” and says: “It should not be just a defensive mechanism. It can be a strategic weapon.”

Lee’s research argues that companies such as Shein and Temu use digital supply chains to launch products with great frequency and variety, helping to create demand rather than simply respond to it. The paper warns that the strategy can increase profits but also create environmental risks if left unchecked.

Yet despite years of disruption and growing investment in resilience, some researchers argue that many companies have already reverted to pre-pandemic habits.

Luk Van Wassenhove, the Henry Ford chair in manufacturing and professor emeritus at Insead in France, argues that many businesses still focus too narrowly on their own operations rather than the wider ecosystems they depend on. He says that companies do not exist in isolation, but “are all part of complex supply networks”.

Van Wassenhove adds that many organisations have still not fully absorbed the lessons of recent disruptions. “Many companies went back to normal after Covid and quickly forgot that this could, and probably will, happen again.”

That stubbornness extends beyond logistics and sourcing decisions, argues Christian Durach, professor of supply chain and operations management at ESCP Business School’s Berlin campus. “Companies generally are pretty bad in adjusting their business models to the new times,” he says.

Durach argues that the next phase of supply-chain management will depend increasingly on visibility across supplier networks and earlier identification of risk.

“Think back to Covid,” he says. “There was an outbreak in Wuhan, but many companies did not know how exposed they were.”

The era of supply chains designed primarily for efficiency may not be fully over. But for many companies, research shows that visibility, resilience and adaptability are becoming just as important as cost and speed.

What the papers say: the latest research on supply chains

Supply chains as a product

Supply chains are no longer just operational support systems but, increasingly, products companies can sell.

Research co-authored by Zhao Xiande at Ceibs in China shows how digital tools are making supply chains more modular, with interchangeable components that can be reorganised quickly around customer needs.

The paper examines Haier, the Chinese home-appliance maker, which cut stock turnover times — a measurement of how quickly a company’s inventory is sold and replaced — to just five to seven days using a modular supply chain, compared with industry norms of several months. Haier also launched COSMOPlat, a digital platform selling customised logistics and manufacturing services to companies, effectively turning its supply chain into a standalone business.

One clothing manufacturer using the platform cut delivery times from 45 to seven days, according to Zhao’s paper — highlighting the commercial potential of “supply-chain-as-a-service” models.

The network effect

Supply-chain resilience often depends on suppliers far beyond a company’s immediate network, found a paper co-written by Christian Durach at ESCP Business School.

Studying the aftermath of the devastating 2011 earthquake in Japan, the researchers analysed more than 13,000 supply-chain “triads”, or networks linking buyers, first-tier suppliers and second-tier suppliers.

Buyers in triads hit by the earthquake suffered an average 46 per cent drop in return on assets compared with similar companies that avoided the shock.

But the study found buyers performed better after the disruption when both direct suppliers and those further upstream held extra inventory, particularly when buyers themselves were operating with leaner stock levels.

The paper highlights the “pivotal” role of first-tier suppliers in connecting buyers to those upstream inventories. But those benefits weakened when multiple buyers competed for the same suppliers after the earthquake, making inventory more expensive.

The findings suggest many companies still underestimate how exposed they are to risks buried deep within supplier networks.

The rise of reshoring

Reshoring reflects a growing dissatisfaction with the assumptions that drove decades of offshoring. That’s according to a paper by Bologna Business School’s Paolo Barbieri and others.

Reviewing 57 academic studies published over a decade, the researchers found that many companies underestimate the true costs of offshore production.

Those costs included higher inventory, freight and logistics costs, penalties for late orders and charges stemming from slower responses to customer demand.

On top of that, rising labour and sourcing costs, energy shortages and growing administrative burdens were all pushing companies to rethink offshoring decisions. At the same time, companies wanted production located closer to customers and research and development teams to boost responsiveness.

The review also highlights the role of automation and digital manufacturing in reshoring decisions. Technologies such as robotics were reducing the need for low-cost labour and making reshoring more feasible. But the researchers caution that reshoring should not be seen as a return to mass manufacturing employment. Reshored production is often more automated and typically requires fewer but more highly skilled workers.

Reactions to Covid disruption

The Covid-19 pandemic triggered widespread changes in sourcing strategies among German manufacturers, according to a study by authors including Beata Javorcik at Oxford University.

Drawing on a survey of more than 4,000 companies, the researchers found that almost 90 per cent had made changes. The most common response was increased stockpiling, adopted by 68 per cent of manufacturers, followed closely by supplier diversification at 65 per cent.

The findings suggest many companies are moving at least partly away from ‘just-in-time’ production models towards systems built around greater redundancy. But the study found that these changes rarely involved bringing production back in-house.

The paper also found important differences between large companies and smaller ones. Big manufacturers were more likely to diversify suppliers and invest in supply-chain monitoring, while smaller organisations focused more heavily on stockpiling.