Supply-chain restructuring: don’t just manage, strategise

Supply-chain roles come in two broad categories: managers and strategists. The former focus on improving current supply chains by optimising processes. Strategists, on the other hand, formulate a long-term supply chain vision that, through resilience and innovation, increases competitive advantages. Businesses should prioritise both. Supply-chain management alone may help to optimise current operations, but the benefits might not be future-proof. Similarly, supply-chain strategising without well-managed execution will not optimise business potential. In 2025, the ability to blend operational excellence with strategic foresight will be tested, as supply-chain configurations will need to address immediate demands while preparing businesses for long-term trends.

Split decision: diversify or localise?

The scale of change in supply chains is impressive. Businesses are responding to geopolitical tensions and climate change, while preparing for unforseeable bottlenecks, drawing on their experience with the global pandemic and other recent disruptions. Up to 88% of businesses plan to reconfigure their supply chains in 2025, with the two main focuses being diversification and localisation. Nearly half of the businesses we surveyed (46%) are diversifying geographically (see Figure 5). They are seeking to balance risk and opportunity by sourcing inputs from multiple regions. Executives say they are doing so to enter new markets and grow revenue streams (cited by 39%) and reduce dependency on individual markets, such as China (37%)—two long-term strategic priorities (see Figure 6). This reflects strategists’ mandates to reduce vulnerability and expand their consumer base. However, the success of this diversification will hinge on the managers’ ability to execute expansion efficiently and cheaply.

However, spreading operations across borders is no easy task. As Mr Lacey points out, “supply-chain diversification is not a short-term project”. In his view, “These efforts will show results over a decade; it took Tim Cook ten years to build Apple’s supply chain in China—reconfiguring it will not take three years.” This complexity is why a senior official at the European Commission expressed skepticism: “when you speak to businesses, they see the point in theory, but few are doing precautionary diversification; they diversify only when they actually need to, when they have no choice”.

Motivated by efficiency and control, some firms seek to shorten their supply chains, either through regionalisation (22%) or reshoring (20%) (see Figure 6). Regionalisation, which entails switching to closer-to-home suppliers, is predominantly motivated by a need to reduce transport and logistics costs (33%) and times (31%). Reshoring, which entails shifting manufacturing and sourcing to the home (or end) market, is primarily driven by a desire to improve control and oversight, and support the local economy (each reason cited by nearly a quarter of respondents).

Efficiency and control, to many, come with reduced risk and increased resilience, aligning management priorities with strategic goals. A senior executive managing supply chains for a major food operator in the Middle East and North Africa stated that bringing suppliers closer was a necessity rather than merely an efficiency objective. This approach, they explained, gained traction in response to escalating freight costs and persistent logistical bottlenecks, particularly in places with limited agricultural production. The executive noted that in some instances, the cost of transport has outstripped the value of the goods being shipped, forcing a re-evaluation of the geography of sourcing.

Excessive localisation, however, may tip the balance. A senior supply-chain executive at a global food and beverage company observes that some firms are experimenting with insourcing—that is, bringing production in-house. “It is not going to be as easy as everybody thinks it will be, but if not now, then when?”, they say. The company has initiated proof-of-concept projects for insourcing, which have helped it “uncover key insights and opportunities for improvement,” the executive explains. This, they add, has drawn the company closer to achieving its insourcing goals within the next couple of years. By doing so, the executive notes, the company has been able to “identify exactly what’s wrong and implement measures to fix the issues. It’s all about building the base for the future now.” This underscores that although efficiency and control may motivate localisation, extreme forms—such as full insourcing or reshoring—can be complex and time-consuming.

Therefore, a midway approach that integrates elements of both diversification and localisation may be optimal. By diversifying their sourcing of raw materials and components in the early stages of the supply chain, businesses can tap into global innovation and cheaper markets while mitigating risks associated with relying on a single sourcing region. Subsequently, regionalising the production and assembly links of their supply chain can enhance later-stage efficiency and control while also increasing responsiveness to customer demand. Finding the right balance for each business will require a blend of strategic foresight and operational excellence, aligning long-term vision with practical execution.

All the eggs, not in one basket

Beyond geographic reconfiguration, firms are also weighing how many suppliers to work with. Overall, a vast majority (75%) are diversifying their supplier base, preferring to work with more suppliers. The primary motivation of doing so, executives say, is to improve supply-chain flexibility and responsiveness (42%) (see Figure 7B). For strategists, this approach is not only about mitigating supply shocks, but also having wider access to unique capabilities across different suppliers. For managers, working with more suppliers means higher operational complexity, but can still be preferable, as this approach avoids a bottleneck with one supplier affecting the whole chain.

Companies choosing to work with fewer suppliers (25%) are doing so to ensure higher quality and consistency in products (19%) and build more strategic relationships (18%). The preference for working with fewer, more tightly integrated suppliers reflects a deliberate trade-off: although it may limit flexibility, it enhances control and accountability. In these cases, strategists do not view supplier relationships transactionally, but rather as collaborative partners with whom shared goals—such as process improvement, innovation and sustainability—can be achieved. Over time, fewer, more deeply integrated partnerships can serve as a cornerstone of competitive advantage, offering alternative ways to mitigate risks compared to diversifying the supplier base.

Businesses do not have to choose just one approach, though. The right approach will vary across industries and supply-chain segments. Our survey results show that a majority of firms prefer diversification, and that this is expected to remain the dominant strategy. However, some firms will have compelling reasons to opt for fewer, more deeply integrated supplier relationships. One such reason is the advancement of technology, in particular the proliferation of generative AI, which will lighten the workload of supply-chain officers. By automating routine administrative tasks, generative AI will enable these functions to shift their focus toward strategic priorities, such as cultivating stronger relationships with important suppliers. This will enhance productivity and boost operational efficiency, but also allow companies to better balance the benefits of diversification with deeper supplier partnerships.

Thinking outside the [cargo] box

When it comes to mitigating supply shocks, companies choose more cost-effective options over inventories—the traditional way of building buffers. About 42% of executives believe that diversification is more effective than holding inventories to enhance supply-chain resilience, whereas only 20% view inventories as more effective (see Figure 8). Diversification enables companies to achieve the dual goals of growth and resilience (see Figure 6), whereas inventories increase the cost of working capital. Another 37% see diversification and inventory-building as equally effective. As such, firms are shifting to leaner operations: on average, inventories have decreased from a peak of 10.2 weeks in 2022 to 8.6 weeks in 2024 (see Figure 10).¹⁸

The sentiment towards inventories is reflected in real-world data. For American businesses, inventories relative to sales have remained relatively stable over the past decade (with the exception of the pandemic spike), despite the increased emphasis on resilience after the supply-chain disruptions that arose during covid-19.¹⁹ This suggests that rather than relying on large inventories to buffer against supply shocks, businesses are instead looking to diversify their supplier bases. In times when high interest rates make borrowing expensive, this approach is unsurprising: capital tied up in warehouses is better spent elsewhere.

One way to bridge the gap between the trade-offs of different supply-chain strategies is through digital tools. Anderson Martins, head of supply chain at Nestlé Philippines, suggests that, although he does not foresee a return to just-in-time-centric models, companies should aim to optimise inventory levels using AI and supplier collaboration. By leveraging advanced analytics and platforms that co-ordinate the supply chain, firms can fine-tune their inventory management, reducing the need for extensive stockpiles while maintaining flexibility and responsiveness. Put simply, digitalisation allows companies to mitigate risks without relying on supplier diversification or large inventories.