April 10, 2025
Managing Partner
Businesses must fundamentally reinvent the outdated global supply chain model to withstand ongoing disruptions, fulfill sustainability demands, and meet evolving customer expectations.
Ongoing disruptions, from new tariffs to pandemic fallout, have spotlighted the urgent need to reimagine supply chains for resilience and sustainability. Companies that seize this moment to transform their operations will guard against the next crisis and unlock new growth and competitive advantages.
Tariffs continue to accelerate the overhaul of business operations, prompting executives to make bold trade-offs and pursue strategic transformations amid constant disruption. Leaders across industries now recognize an unsettling reality as they confront more tariffs: These are simply the latest blows to a supply chain system that no longer serves today’s world, mainly because it was built on assumptions that no longer hold.
For decades, the “just-in-time” philosophy guided the production and delivery of goods, and it thrived during an era of broad globalization. Many companies led by legacy consulting firms shifted manufacturing to the lowest-cost regions, shipped from distant locations, and sold their products worldwide. Supply chains operated predictably and linearly, and concerns about the sources or carbon footprints of goods rarely influenced purchasing decisions.
That is no longer the case. In recent years, multiple shocks have revealed the vulnerabilities of traditional supply chain models. The global pandemic upended production schedules, a widespread semiconductor shortage disrupted automotive and consumer electronics industries, inflation soared, and geopolitical tensions fractured trade relations. As executives grapple with labor constraints, shifting customer expectations, advancements in artificial intelligence (AI), and growing demands for sustainability, they discover that tariffs are another powerful catalyst pushing them to rethink how goods are produced, transported, and delivered.
Many leaders have begun applying the lessons of the past few years to navigate upheaval more effectively. Tariffs are the most recent pressure forcing rapid decisions to safeguard operations and profitability. Even before the imposition of additional US tariffs under the second Trump administration, many companies had already started adjusting their capital allocation post-pandemic. They prioritized supply chain and technology investments instead of channeling funds solely into debt repayments and dividends.
According to a Santiago & Company survey of operations executives conducted in early January, nearly 40% of respondents expected tariffs to add double-digit percentage increases to product input costs, and close to 80% reported revising or considering revisions to financial forecasts in response to tariff concerns. The survey also indicated that many executive teams are diversifying their supply chains, expanding their supplier networks, assessing price hikes, and relocating manufacturing hubs (see Figure 1).
Figure 1: Quantifying and Mitigating Tariff Risks Through Supply Chain Optimization and Pricing Strategies
Most companies plan to reduce other expenses to fund these efforts, yet the most forward-thinking leaders view tariffs not as a one-time disruption but as the latest symptom of a broken system. They understand that incremental fixes are insufficient, so they are taking courageous steps to reinvent how their supply chains and operations function.
No formula can address every challenge because traditional rules governing supply chain decisions no longer suffice. Cost reduction, streamlined inventory management, improved service, and quality control still matter, but modern supply chains must also be resilient, sustainable, and responsive to shifting customer expectations. They need to be traceable, designed for economic nationalism, and incorporate circular practices wherever feasible. In reality, no organization can make a supply chain simultaneously flawless in resilience, sustainability, responsiveness, traceability, and circularity without some compromise on cost.
CEOs and operations leaders are pressured to balance various competing priorities. In a recent survey, about three-quarters of respondents rated six or more objectives as “extremely” or “more” important (see Figure 2).
Figure 2: Operations leaders are juggling a tremendous number of competing priorities
The pathway to success lies in making the right strategic trade-offs. Those decisions will be more complex than most operations teams have encountered in the past 30 years. In this environment, supply chain design is no longer a purely engineering problem that can be solved with straightforward algorithms. It is fundamentally a strategic challenge, and the ideal solution will differ by sector and company.
The result is a new imperative for many organizations: urgent supply chain reinvention. This transformation calls for entirely different skills, tools, and mindsets than what worked during the relative stability of 1990-2020.
Another round of reactive fixes will not suffice for a system built for a world that has already moved on.
Our work assisting companies around the globe with operations overhauls reveals that organizations pulling ahead focus on three major principles.
Emerging leaders are reimagining their supply chains by envisioning an ideal future state first, then working backward. Instead of getting lost in small-scale optimizations or half-makes, they embrace bold changes and confront entrenched assumptions.
One technology equipment maker, for instance, faced intensifying geopolitical risks due to a reliance on China and Taiwan. The company also had to meet ambitious sustainability targets, comply with new regulations on product recycling, and offer customers easy access to replacement parts. Through scenario analysis, leadership estimated the effects of potential supply chain changes on costs, resilience, consumer willingness to absorb higher prices, and total carbon emissions. This exercise guided a nearshoring strategy that mitigated geopolitical risk and unlocked financial upsides. Management projected a 2% to 3% annual revenue boost while avoiding a 2% cost jump. Achieving these benefits required a bold decision to relocate primary manufacturing operations closer to core markets and adjust key supplier relationships.
Supply chains cannot be fixed by chasing one variable at a time. Leaders who have scrambled from one crisis to the next since the onset of the pandemic know that whenever they resolve one problem, another emerges. The most successful teams now treat their supply chains as complex ecosystems that require understanding and balancing multiple interconnected factors. They acknowledge that the right trade-offs depend on the company’s long-term strategic goals and that structural design choices can simplify or complicate them.
A chemical manufacturer recently recognized the pitfalls of operating in functional silos, where each division maximized efficiency based on its metrics. This approach produced higher costs, slower lead times, and confusing responses to supply chain shocks. Leaders resolved to reorganize for end-to-end integration, empowering cross-functional collaboration that could align decisions throughout the entire supply chain.
By evaluating all primary metrics and interdependencies simultaneously, the company discovered new ways to optimize. It cut warehousing and logistics expenses by over 5% through stricter usage of lower-cost transport carriers, challenging accessorial fees, fine-tuning warehouse usage, and better planning. Leaders also freed up cash by reducing inventory by more than 15% and building a more accurate cost-to-serve model. Altogether, this redesign helped the company meet its growth target of 15%.
Companies that excel at supply chain transformation invest in strategic, digitally savvy teams and ensure they have the data for intelligent decision-making. They also encourage innovation, both in how they approach software and analytics and in how they build partnerships.
A household products manufacturer, for example, had optimized a high-speed, high-volume supply chain for efficiency but lacked flexibility. When volatile demand hit, managers reacted to shifts instead of shaping new opportunities. To change course, leaders adopted a more nimble approach. They used digital twin simulations to model various scenarios and created a buffer of adaptable manufacturing capacity by adding factories and building partnerships with co-manufacturers. As a result, they increased net sales by 3%, shortened time to market, and improved tracking of capacity utilization while reducing overall operational costs by more than 2%.
In another example, a shipbuilding company faced rising resource costs and a shortage of skilled workers that threatened both quality and profitability. Management introduced digital solutions and automation in engineering, inspection, maintenance, robotics, logistics, and supply chain traceability, shifting from a function-by-function method to a more integrated approach. These targeted initiatives significantly lowered costs and gave the company powerful analytics based on newly available data. The shipbuilder now holds a stronger position in a competitive market.
The old supply chain playbook no longer works, and every new disruption magnifies its shortcomings. Organizations that perceive tariffs or other global shocks merely as isolated crises to endure will remain in perpetual response mode, trailing behind more proactive competitors.
Forward-looking leaders use this moment as an opportunity to rebuild. They invest in a more profound transformation, even when it involves difficult trade-offs. By doing so, they can evolve from simply surviving the next setback to thriving in a future characterized by resilience, sustainability, agility, and transparency. It is no longer a matter of whether the supply chain should adapt. The real question is whether companies can reimagine their supply chains entirely and commit to the following journey.
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