Written by Stephen Ashford
Supply chain strategy has always involved making decisions with imperfect information. Companies quantify risk, model probabilities, and make the best decisions they can with the available facts. The difference now is that key variables are even more dynamic and harder to predict. We know where tariffs stand today, but not where they will be in three months. We know the current state of the conflict with Iran, but not what it will mean for supply chains two years from now.
Shifting variables aren’t new, but today’s rate of change and unpredictability are testing the limits of even the best models, causing companies to rethink where, how, and when they manufacture.
For those in the C-suite, the uncertainty has prompted demands for better answers from the data, yet models struggle to predict the unpredictable. As the variables multiply and certainty shrinks, there’s a worse decision than making the wrong call: making no call at all.
So, how are businesses navigating today’s environment? Viewing the decisions as multi-faceted, and as a balance of cost and risk.
Moving beyond traditional modeling
For years, quantitative modeling was the gold standard for supply chains and manufacturing. But that approach becomes more difficult when the probabilities themselves are volatile week to week. What is the likelihood of another tariff change, a war escalation, a geopolitical flare-up, a natural disaster, or another pandemic?
The answer isn’t necessarily a more sophisticated model; it’s clearer direction from leadership. Executives must define the “what ifs” that matter, set the boundaries around acceptable risk, and decide what the business is willing to pay for resilience. That starts with understanding which disruptions could materially affect the business, how much exposure the company can absorb, and where a little more cost today could prevent a much larger problem tomorrow. Once those guardrails are clear, analysts can do what they do best: build the model that helps leadership make better decisions.
De-risking the supply chain
The companies navigating well aren’t trying to predict every disruption. They’re building enough flexibility into the supply chain to respond when the next disruption arrives. That doesn’t mean maintaining excess capacity everywhere or abandoning cost discipline. It means identifying where the business is most exposed and creating options where they matter most: more than one source, route, viable manufacturing location, or the ability to shift production when conditions change.
That requires looking beyond a single “optimal” supply chain and stress-testing how it performs under different conditions. Scenario planning can help identify where a little more cost or redundancy could buy meaningful flexibility.
For example:
- Labor-sensitive industries: Low-cost labor is only an advantage if the broader economics hold. Companies should look beyond wage rates to include productivity, turnover, training costs, tariffs, and the cost of disruption. A location that is 10% cheaper on labor may not be cheaper if it is significantly more exposed to trade or operational risk. The question is not simply where is labor cheapest? but where is the total cost most attractive given the risk we’re taking?
- Freight-sensitive industries: Nearshoring can reduce transit times and simplify logistics, yet proximity alone does not eliminate risk. Companies should evaluate port capacity, border crossings, infrastructure, security, and the concentration of freight through a limited number of routes. In some cases for mission critical inputs or product, the right answer may be maintaining an alternative route or supplier, even if it carries a higher unit cost.
- Raw material costs: Geographic price differences can make sourcing from one region look particularly attractive, but the lowest-cost source may also leave a company more exposed to tariffs, transportation disruptions, or commodity volatility. Where a raw material is business-critical, leadership should consider whether diversifying suppliers or regions is worth paying a premium for greater continuity.
- Regional hedging: Geographic diversification can provide a valuable hedge when too much production is concentrated in one market. For companies with significant exposure to higher-risk regions, moving some production to a more stable geography may increase costs in the near term but reduce the impact of a major disruption. The goal isn’t to eliminate exposure altogether; it’s to avoid having a single event dictate the outcome for the entire supply chain.
Moving from cost to risk
Today’s supply chain strategy requires a mindset shift. Decisions are no longer about total cost of ownership alone; they need a clear view of the risks that come with that cost.
That means every strategic choice is now a tradeoff: balancing the opportunity for current lower cost and higher risk against the protection of lower risk and higher cost. A situation that can absorb disruption may rationally accept more exposure, while one that cannot may pay for more resilience.
The goal isn’t to eliminate risk. It’s to be deliberate about where you take it.
The cost of paralysis
The most challenging part of this environment is adjusting to a world where there is no window in which the variables become suddenly more stable. Waiting for certainty can mean losing capacity, giving up favorable sourcing options, or allowing competitors to move first, and choices available may be fewer and more expensive.
That does not mean reacting to every headline. It means recognizing that uncertainty and risk evaluation are greater parts of the decision itself. The goal is not to predict what happens next; it’s to make a deliberate decision about what you’re willing to bet on, recognizing the conditions may change.
