Beyond Tariffs: The Supply Chain Reinvention Imperative

Executives across industries are coming to a sobering conclusion as their businesses navigate more tariffs: This is yet another massive hit to a supply chain system that no longer works, because it was built for a world that no longer exists.

The “just-in-time” approach to producing and delivering goods performed well for decades during the globalization era. Companies could make products in the lowest-cost location, ship them from far-away sites, and sell them everywhere. Supply chains were linear and predictable. The provenance and carbon footprint of goods weren’t high on most buyers’ lists of purchasing criteria.

None of those things are true anymore. Supply chain disruptions piled up in recent years with the devastating Covid-19 pandemic, global semiconductor shortage, inflation, more frequent extreme weather events, and geopolitical frictions in an increasingly post-global world. At the same time, executives are grappling with the supply chain implications of big shifts in the business landscape: labor challenges, evolving customer expectations, transformative technologies such as artificial intelligence, and stakeholder pressure to decarbonize and improve the sustainability of operations.

Executives are applying what they’ve learned over the past few years to better manage through turbulence. Tariffs are simply the latest disruption forcing decisive action to protect business operations and profitability.

In anticipation of new tariffs, companies recently began reallocating capital to supply chain and technology investments, with debt repayments and dividends taking a backseat. That’s according to a Bain survey of global operations executives in early January, before the US enacted new tariffs under a second Trump administration. Almost 40% of respondents anticipated double-digit percentage increases in product input costs due to tariffs, and about 80% said they were revising or considering revising financial forecasts because of tariff concerns.

According to the survey, the most common actions executive teams are taking include diversifying the supply chain, expanding the supplier base, considering price increases, and relocating manufacturing hubs (see Figure 1). Most companies plan to cut costs to pay for tariff mitigation measures.

However, the most effective leadership teams aren’t just pursuing one-time actions to mitigate the latest tariff threats. Recognizing that tariffs have once again exposed an outdated system, these leaders are also taking bold steps to reinvent their supply chains and operations.

The traditional formula that governed supply chain decisions no longer suffices. Reducing costs, optimizing inventory, improving service and quality, and driving growth remain fundamental priorities. But now, supply chains must also become more resilient, sustainable, and highly responsive to changing customer expectations. They also need to be traceable and attuned to economic nationalism, and they should incorporate elements of circularity. The problem is that it simply won’t be feasible to make a supply chain 100% resilient, sustainable, responsive, traceable, circular, and still cost effective.

CEOs and operations leadership teams are struggling to manage the ballooning number of competing priorities. Around 75% of respondents in our latest survey rated six or more priorities as “extremely” or “more” important (see Figure 2).

Winning in this new world will come down to making the right strategic trade-offs. Those trade-offs will be more complex than what most operations teams have encountered in the last few decades. Supply chain optimization is no longer primarily an engineering problem that can be solved through a set of algorithms. The problem is one of strategy, and there’s no single formula to determine the best choices. Furthermore, the right strategic decisions will vary by sector and by company.

The upshot: Supply chain reinvention is now an urgent transformation imperative for most companies—one that will require a very different set of capabilities and approaches than in the past.

Three keys for executives

In our work helping companies worldwide to revamp their supply chains and operations, we’ve seen the emerging leaders focus on three overarching principles.

1. Start by thinking without constraints. Leading companies are redesigning their supply chains by working backward from the ideal future state. They’re not getting bogged down by incremental fixes, and they’re not balking at taking big swings.

Faced with mounting geopolitical risks, the leaders of a technology equipment manufacturer realized the company’s reliance on China and Taiwan posed a serious threat to its supply chain resilience. At the same time, the company was under pressure to meet ambitious sustainability goals and to comply with emerging regulations on issues such as product recycling and customers’ access to replacement parts.

Using scenario analysis, the company quantified the anticipated effects of various supply chain changes on costs, resilience, customer willingness to pay higher prices, and carbon emissions. The result was a strategically sound nearshoring approach that not only mitigated risk but also delivered financial upside—a 2% to 3% annual revenue boost while potentially avoiding 2% in additional costs. Nevertheless, enacting the plan took courage: It requires moving much of the company’s manufacturing closer to core markets and relocating key suppliers.

2. Solve the operations equation as a multivariate system. The solution won’t come from running a single algorithm or fixing one variable in isolation. In fact, that’s been the failing pattern since Covid: Management teams have tended to react to the latest shock, only to encounter a new shock in a few months. Emerging leaders recognize the supply chain must be managed as a complex, multivariate system, while understanding all the interdependencies. Decisions hinge on strategic trade-offs unique to each company’s long-term goals. Certain structural designs will make the trade-offs more manageable.

A chemical company had long operated in silos, with each team along the supply chain trying to maximize its own efficiency around one or two key metrics. This fragmented approach led to slower lead times and unnecessary costs, and it made the company’s responses to supply chain shocks inefficient and ineffective.

To address this, the company redesigned its supply chain to function as an integrated, end-to-end system. The cross-functional collaboration and bigger-picture thinking allowed the company to tackle the whole system and all key metrics at once, opening up new design options and more degrees of freedom. The company then segmented its operations to meet specific customer and product needs rather than defaulting to a one-size-fits-all model.

Tactically, the company reduced warehousing and logistics costs by more than 5% by enforcing the use of the lowest-cost transport carriers across its plants, challenging carriers' accessorial fees, optimizing the use of key warehouses, and improving its planning. It freed up cash by cutting inventory by more than 15%, and it developed a more precise cost-to-serve model.

All told, the company’s supply chain redesign helped it achieve its goal of 15% growth.

3. Upskill talent, upgrade digital tools, and update management systems. Emerging leaders are upgrading and training operations teams to be more strategic, as well as more innovative, in their use of digital tools. They’re also making sure they have the data necessary to make strategic choices.

One household products company had built a highly efficient, high-speed, high-volume supply chain, but it lacked flexibility. The company found itself reacting to demand shifts and shocks, rather than proactively shaping its market opportunities.

To change that, the company adopted a more responsive, nimble supply chain strategy. After modeling various scenarios using digital twin software, the company honed its manufacturing and logistics by introducing factories to provide additional capacity as needed and expanding co-manufacturing partnerships. These changes not only supported a 3% increase in net sales but also improved speed-to-market and the tracking of manufacturing capacity utilization, thereby reducing operational costs by more than 2%.

Meanwhile, rising resource costs and a shortage of specialized workers were challenging a shipbuilding company’s competitiveness. The company’s leaders realized that digital technologies and automation would be key to improving efficiency without sacrificing quality.

They moved from a function-by-function approach to integrated thinking and set a clear vision, prioritizing high-gain technology investments across engineering, inspection, maintenance, robotics, logistics, and supply chain traceability. These efforts helped significantly reduce costs in those areas and added analytical capabilities based on newly available data, positioning the company for long-term success in a challenging market.

Thrive, don’t just survive

The old supply chain playbook is obsolete. Companies that treat tariffs and other disruptions as isolated crises to “manage through” will find themselves in a constant state of reaction—always behind, always vulnerable.

The leaders pulling ahead are the ones using this moment as a catalyst for reinvention. They’re transforming while making bold trade-offs that position them not just to survive the next disruption, but to thrive in a future where resilience, sustainability, agility, and visibility will define success. The question isn’t whether your supply chain needs to change—it’s whether you’re willing to rethink it from scratch.