Geopolitical readiness in supply chains: Strategic challenges for leaders

In the early years of this decade, supply chains have been plunged into the spotlight, facing unprecedented pressure from geopolitical upheavals and global disruptions. The COVID-19 pandemic, trade wars, and political tensions have created a complex environment where supply chains must adapt and become anti-fragile—embracing adversity and growing stronger. These challenges have tested existing supply chain models and accelerated the need for innovation and strategic foresight.

Recent data underscores the magnitude of these changes:

• The Geopolitical Risk with Trade (GPRT) index from 2020 to 2024 has surged by approximately 30% compared to the previous two decades, reflecting increased volatility in global trade relations due to the geopolitical landscape.
• The Global Supply Chain Pressure Index (GSCPI) has nearly tripled during the same period, highlighting the heightened stress and complexity that supply chains are experiencing worldwide.

Emerging challenges

These indices reflect a convergence of disruptions reshaping the supply chain landscape. While the GPRT surge signals heightened trade tensions and policy uncertainties, the tripling of the GSCPI underscores the cumulative impact of multiple pressure points on global supply networks. The data reveals not just isolated occurrences but systemic challenges that require comprehensive responses. Supply chain leaders now face a complex ecosystem of interconnected challenges, each capable of triggering cascading effects across operations. Seven critical areas have been emerging as primary concerns, demanding immediate attention and strategic planning:

1. Changes in tariffs and regulatory requirements: The global trade environment has become highly volatile, with frequent changes in tariffs and regulatory requirements. These shifts can significantly impact supply chain costs and operations. Navigating these changes demands a deep understanding of international trade laws and the ability to minimize disruptions while maintaining compliance.
2. Trade route blockages: Events like the Suez Canal blockage have underscored the vulnerability of global trade routes. Such incidents can cause significant delays and financial losses, emphasizing the need for supply chains to develop robust contingency plans and diversify their logistics networks.
3. Constraints on critical materials: The availability of critical materials has become a significant concern for many industries. Supply chain leaders must develop strategies to secure these materials, whether diversifying suppliers, investing in alternative materials, or acquiring strategic assets in the value chain.
4. Increasing cyberattacks: As supply chains become more digitized, they become increasingly vulnerable. These attacks can disrupt operations, compromise sensitive data, and damage brand reputation.
5. Energy security and transition challenges: Considering the global push for sustainability, Supply chains face the dual pressure of ensuring reliable energy supply while transitioning to greener alternatives. This affects transportation costs, manufacturing decisions, and overall network design
6. Labor market disruptions: Global labor shortages, wage inflation, and shifting workforce demographics can affect the global mobility and recruitment of skilled technical positions.
7. Currency volatility and financial risk: Increasing geopolitical tensions have led to more significant currency fluctuations and financial market instability, which affect supply chain costs, contracts, and the ROI of investment decisions.

Organizational readiness as a competitive asset

In this complex environment, organizational readiness within the supply chain function is becoming a crucial competitive advantage. Supply chain pfficers (SCOs) must continuously address critical questions and establish clear action plans. The following questions should remain at the forefront of the agendas for both SCOs and CEOs:

Supply chain leaders must keep moving beyond reactive measures to build systematic capabilities that address both immediate disruptions and long-term strategic positioning. In this context, organizational readiness within the supply chain function has evolved from a support capability to a crucial competitive advantage. Supply chain officers must continuously address critical strategic questions that span operational, tactical, and strategic horizons. These regularly revisited and thoroughly answered questions create a framework for building answer-ready supply chains. The following questions should remain at the forefront of both SCO and CEO agendas:

1. Operating model optimization: How can I enhance my operating model to effectively balance centralization, integration, federation, or independent decentralization on a global scale?
2. Decision-making clarity: Are decision drivers and contingency plans well-defined for routine operations and disruption scenarios?
3. Digital workflow development: How can I construct a digital workflow with clear decision rights supported by the best possible and available data?
4. Workforce upskilling: What critical competencies must be developed (up or reskilled) within my supply chain workforce?
5. Transparency and risk assessment: What is the current transparency and risk assessment level beyond tier 1 suppliers?
6. Make vs. buy strategic decisions: Given the geopolitical context, what capabilities and assets should we manage in-house versus outsourcing? How does this affect our vertical integration strategy?
7. Network optimization: To what extent can network optimization strategies (e.g., near-shoring, friend-shoring, supplier diversification, regional hubs) be implemented without sacrificing economies of scale or increasing management complexity?
8. Stress testing, finance, and insurance: How frequently and realistically are stress tests conducted, and how is the insurance safety net updated in response to these tests? How can we optimize working capital while supporting key suppliers' financial health?

Addressing these questions can help supply chain leaders better navigate the landscape's complexities, increasing anti-fragility maturity, competitiveness, and customer-centricity. 

About the author

Hugo Teophilo currently works at Novo Nordisk as a Senior Organizational Readiness Partner and has previously worked in Strategy and Organizational Development in Maersk, McKinsey, and PwC.

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