As supply chain disruptions and geopolitical risks remain at a multi-decade high, resiliency in the supply chain is of paramount importance. Not only has the supply chain risen in importance in the executive suite, but it also is becoming a top priority for forward-looking companies. As global supply chains evolve at a rapid pace, the best companies will have more opportunities than at any time in the last few decades to grow and thrive.

Volatility in the Global Supply Chains

Geopolitical, supply chain, and cyber risks have been plaguing supply chains. From exploding pagers in Lebanon to Houthi rebels attacking ships in the Suez Canal, geopolitical risks have significantly impacted supply chains. Natural disasters such as Hurricane Helene and potential port strikes have also created chaos as hospitals ran out of IV fluids when the Baxter facility flooded and JP Morgan estimated a daily $4 billion potential economic impact if the East Coast ports went on strike. Suddenly, the supply chain started emerging as something of paramount importance. Tariffs escalated this issue.

Tariffs have created uncertainty in the supply chain. In essence, although there is quite a bit of volatility and changing tariff rates, there is no doubt the base tariff rate will increase slightly across the board with higher tariffs related to China, other heightened risk areas, and on products manufactured in countries that charge high tariffs on U.S. products. Thus, proactive companies will pivot supply chain strategies and evolve to what's most effective in serving customers successfully and profitably. 

Supply Chains Will Evolve

Companies are assessing their end-to-end supply chains, their vulnerabilities, and options for thriving in this changing business environment. Companies dependent on China are finding backup sources of supply and diversifying their supply chains. In fact, proactive companies are seeing this as an opportunity to reevaluate their end-to-end supply chain.

Transitioning to regional supply chains is gaining in popularity as this strategy can provide the greatest amount of control, shortest lead times, and the best benefits with tax incentives, reduced tariffs, and deregulatory advantages. It can also provide flexibility with a combination of domestic manufacturing and regional support. In addition to Latin America gaining an advantage, India is likely to gain for those companies that want to maintain a manufacturing presence in Asia. For example, an industrial equipment manufacturer reallocated production from its high tariff locations to its U.S. facilities when tariffs were announced. Similarly, a building products manufacturer reallocated its supply base from its Asian facilities to its Mexico facilities and reoriented its supply base to Latin America.

As manufacturing evolves, logistics will follow. Logistics routes will change to be the quickest, most efficient and cost effective. Thus, as companies move to Latin America and India, it is likely they will ship their East Coast requirements directly to the East Coast instead of going through Southern California. Since the Southern California ports and supporting infrastructure are immense, it impacts one-in-nine jobs in the region. On the other hand, just as companies transitioned from the East Coast to the West Coast to mitigate port strikes and Panama Canal drought-related costs, they will switch back to the West Coast if they are most competitive. Similarly, West Coast distribution centers will be needed to support the region and will pivot to receiving goods from internal U.S. sources, instead of through the ports, as supply chains evolve. Transportation systems will do the same and already have significant rail and cross-border infrastructure.

The Bottom Line

Resiliency will become a must in this evolving business environment. Companies that are ahead of the pack and leading the way by predicting evolving supply chains, investing appropriately, and preparing to take on additional volume will thrive. In fact, the best prepared and resilient companies will have their choice of customers as further disruptions and tariff impacts occur. There will be more opportunities to shoot to the top of your industry or market than at any time in the last several decades.

For more information, contact the author at landerson@lma-consultinggroup.com or visit www.lma-consultinggroup.com.