When supply chain efficiency concentrates risk

For decades, many organisations have optimised supply chains with one overriding goal: efficiency. Just-in-time inventory, single-source procurement, lean working capital and tightly concentrated logistics networks have helped reduce costs and improve margins.

In a more stable world, those decisions made commercial sense, but the operating environment has changed. Approaches once described as efficient are now being exposed as fragile, as businesses experienced during Covid-19 and in the years since.

Supply chains are now being tested by a broader shift in the global landscape. Geopolitical fragmentation is affecting sourcing, transport, energy costs and access to critical materials.

The World Economic Forum’s Global Risks Report 2026, released at the start of the year, puts geoeconomic confrontation as the global risk most likely to trigger a material crisis in 2026, ahead of state-based armed conflict.

The report also found that most respondents expect the next decade to be shaped by a more fragmented international order, where major and middle powers compete to set regional rules, control strategic resources and use technology as a tool of influence.

Supply chains were built for a different era

Many supply chains were designed for an era of relative openness, predictability and global integration. Procurement and distribution models often rely on assumptions that goods (and people) will move freely, energy will remain accessible, suppliers will stay financially viable and disruptions will be temporary rather than systemic.

Over the past six years, those assumptions have been challenged. Conflict, sanctions, reshoring policies, export controls, industrial subsidies, cyber disruption and climate-related shocks have contradicted the perception of a stable status quo. The result is less certainty about lead times, costs and availability, even when the underlying demand picture is stable.

Recent conflict in the Middle East has shown how quickly regional instability can ripple through global trade. Disruption risk around the Strait of Hormuz, one of the world’s most critical energy chokepoints, heightens concern about the movement of oil, gas and manufactured goods.

When instability affects key corridors, energy prices respond, shipping routes change, insurance costs rise and freight capacity tightens. Even short periods of disruption can trigger vessel rerouting, emergency surcharges and longer lead times. In some cases, container shipping rates can rise sharply within days, while longer diversions add weeks to transit times.

This is the practical reality of geopolitical fragmentation. It is not only about sanctions, tariffs or diplomatic rhetoric. It is about whether critical components arrive on time, whether fuel costs move suddenly, and whether contingency plans still work when multiple parts of a highly interconnected network are under stress at once.

Efficiency can concentrate risk

Efficiency-driven models often concentrate risk. A narrow supplier base may lower unit costs, but it can also create hidden dependency on one geography, one transport corridor, or shared upstream exposures that sit outside your direct line of sight.

A lean inventory model may improve short-term financial performance, but it leaves little buffer when a shipment is delayed, a port is congested or an upstream manufacturer is affected by geopolitical turbulence. Businesses need to plan for these disruptions rather than treat them as exceptions.

Disruptions to systemically important supply chains and critical infrastructure are also becoming more relevant, and more interconnected. Geopolitical shocks rarely stay contained within one geography or one market. Armed conflict can trigger energy market volatility and trade restrictions. Trade restrictions can change sourcing economics. Energy volatility can contribute to inflation. Inflation can squeeze consumers and margins. Those pressures can, in turn, reinforce domestic policy responses that accelerate fragmentation. Several of these pressures occurring together can compound the impact.

Testing supply chain resilience

For boards and executive teams, resilience needs to be treated as a strategic capability, with preparedness and recovery considered alongside operational efficiency.

Boards should ask:

• • Where are the concentration risks across our suppliers, routes, manufacturing footprint and critical inputs?
  • Which materials or components are most exposed to geopolitical stress, energy volatility or trade restrictions?
  • How dependent are we on one region for critical supply, and what are realistic alternatives?
  • What happens to revenue, production and customer commitments if lead times double?
  • If we faced a major property or operational loss at the same time as supply disruption, how long would recovery take?

That last question is important because one of the less visible consequences of supply chain volatility is the growing gap between operational reality and insurance assumptions.

Many organisations still declare business interruption values and set indemnity periods using pre-disruption benchmarks. Yet rerouted shipping, constrained labour and more volatile input pricing can extend recovery timelines after an event. An indemnity period that once looked conservative may now prove inadequate. Limits based on older assumptions may also fall short when inflation, freight premiums and procurement delays combine.

What practical resilience can look like

The response will depend on the organisation, its risk appetite and its operating environment. Practical measures may include:

• • Dual or multi-sourcing for critical inputs, supported by clear qualification and switching plans.
  • Targeted inventory buffers for hard-to-replace items, aligned to realistic disruption scenarios.
  • Improved visibility beyond tier-one suppliers, including shared upstream dependencies.
  • Scenario testing against transport, energy and technology shocks, with defined triggers and decision rights.
  • Closer alignment between risk financing and recovery timelines, based on current constraints and credible worst cases.

Resilience and efficiency both contribute to supply chain performance, balancing continuity, adaptability and speed of response with cost control. In a fragmented world, that balance can strengthen an organisation’s ability to keep operating through disruption.