Supply chain leaders might be feeling a sense of whiplash these days. During the pandemic, the supply chain was elevated to a new status as C-suites everywhere recognized the importance of sourcing, receiving, and delivering goods, come what may. The supply chain was suddenly seen not as a cost center but as a strategically vital business function. Supply chain resilience and adaptability were championed as top priorities, even if it meant higher costs.

But now, the pendulum has started to swing back. In a late 2024 survey by global consultancy EY, 88% of supply chain leaders said the C-suite viewed the supply chain as a cost center, and 78% reported they were back to focusing on cost management. A survey by professional services giant KPMG, meanwhile, had similar findings: “When executives face a tradeoff between agility and cost, it is cost that wins out,” the report concludes.

It’s not that the world has suddenly become safer or more stable—after all, tariffs are on the rise and there are plenty of global forces that could spur supply chain disruptions. However, increased inflation, and perhaps just a touch of complacency, has pushed companies to, once again, steer most supply chain conversations toward cost.

“I don’t think any company is moving back from resiliency—it’s just that they are a bit more cautious on the cost implication of it,” says Michel Roger, managing director of supply chain and operations in the SAP business group at Accenture. “Maybe it’s not resiliency at any cost, but resiliency at reasonable cost.”

Takshay Aggarwal, EY Americas supply chain growth platforms leader, agrees. “The C-suite is not wrong to focus on costs,” he says. “They need to do that in order to maintain their P/E ratios and stock prices.” In his view, post-pandemic inflation led companies to raise prices, which depressed sales volumes. Now, despite uncertainty regarding tariffs, and with demand already softening, there’s less room for price increases.

“Companies can’t increase prices much more, so now they have to increase revenue by increasing volume,” explains Ashutosh Dekhne, EY Americas strategic enterprise transformations leader. “That means they must either drive up demand or capture more market share, while still controlling margins.”

This has left the answer to the cost vs. resilience question somewhere in the messy middle, with one sometimes taking precedence over the other but both always on supply chain leaders’ minds.

With no simple answer in sight, leaders need to know how to strike the right balance between the two. In our conversations with experts in the field, we’ve identified four ways supply chain leaders can use to find that balance, along with advice on how to apply them:

1. Speaking the C-suite’s language
2. Using geography to your advantage
3. Factoring in regulatory and tax arbitrage
4. Pulling together isolated technology initiatives

1. Speaking the C-suite’s language

With renewed focus on low cost, the C-suite’s attention to supply chain risk has lapsed, even while it remains high on supply chain leaders’ minds. “The influence of supply chain leaders may be waning,” says EY’s report.“The C-suite increasingly views [the supply chain’s] strategic importance through the narrow lens of cost management.”

In addition, a 2024 McKinsey report found that executive-level discussion of supply chain risk fell significantly from 2023 to 2024. In 2023, nearly 50% of respondents said their organization regularly reported on supply chain risk. In 2024, that share dropped to 25%. Most companies reported that it was discussed ad hoc—only when there was a disruption.

Yet, supply chain risk persists. In the EY survey, 24% of supply chain leaders reported that their organization was unprepared for a pandemic or widespread health crisis, and 19% said they were unprepared for supply shortages. According to McKinsey, there are “considerable gaps in the ability of organizations to identify and mitigate supply chain risks, with few new initiatives aimed at addressing those weaknesses.”

What to know: To maintain the C-suite's attention, supply chain leaders need to relate supply chain activities to business goals—and back up the results with metrics.

Rather than focusing on key performance indicators like cash-to-cash cycles, for example, supply chain metrics could more directly relate to strategic business goals, such as higher customer satisfaction, increased revenue, and larger market share.

That also means supply chains can no longer function in a vacuum. In EY’s survey, 97% of supply chain leaders said they faced challenges with metrics because of a lack of integration across functions. The supply chain might find a higher-quality supplier that leads to higher customer satisfaction. But how would they know unless the marketing and procurement departments shared data from customer satisfaction surveys and new suppliers, respectively?

2. Using geography to your advantage

Following the pandemic, companies shifted where they produce and source goods, often regionalizing their supply networks and nearshoring production to increase resilience and adaptability. Specifically, they are sourcing from suppliers and building production areas that are closer to regional end markets.

In the KPMG report, for example, 76% of respondents said they were moving supply chains closer to the Americas to better serve the U.S. market. In 2023, Mexico surpassed China as the biggest import market for the United States.

Bringing supply chains closer to end markets shortens lead times and can help companies to bypass protectionist measures and avoid certain tariffs, says KPMG. In its survey, three-quarters of respondents reported that their “strategic shoring” had enhanced supply resilience and operational agility.

But there is evidence that these geographic shifts may have slowed. In McKinsey’s survey, the percentage of supply chain leaders who said they had been regionalizing and making progress on dual sourcing has stayed flat for the last two years at 60% and 73%, respectively. According to the McKinsey report, this indicates that the move to increase resiliency is losing momentum.

What to know: Restructuring and reorienting supply chains to increase resilience and responsiveness is important, but it can take years to complete such significant overhauls, notes EY’s Dekhne. In the meantime, he suggests using a software system that allows for a continuous assessment of supply chain risks and AI-driven recommendations on mitigation plans that could be executed quickly. Is a supplier likely to go out of business? Would tariffs create a cost-prohibitive situation with sourcing from your usual supplier? How would that affect your operations? How might you quickly redirect shipping if a war breaks out?

The calculus for determining the best location for a supply network has changed dramatically in the last few years as the costs of labor, production, and distribution have changed. Even amid supply chain restructuring, companies often do not foresee all the costs involved, says KPMG. After all, it’s been a generation since they’ve had to reexamine the sourcing equation. The original business case for the last several decades of global sourcing was based on low labor costs in Asia and reasonable transportation costs around the world, explains Mary Rollman, principal and KPMG U.S. supply chain leader. “The cost of labor was extraordinarily low and the cost of transportation and logistics extremely stable,” she says.

But the last few years have seen rising labor costs in Asia and sometimes dramatic increases in transportation and logistics costs. Companies now need to weigh many other factors, including geopolitical tensions that could close shipping routes, and an increasing array of tariffs. “Such sensitivities need to be modeled so there is a clear view of true costs to serve a market from different places around the world,” Rollman says.

3. Factoring in regulatory and tax arbitrage

Regulations and taxes are additional factors to consider when restructuring supply chain locations. “There is an upward trend of organizations evaluating their supply chains to make them more tax-advantaged,” says KPMG’s Rollman. “That can take on different flavors, but ultimately they look for ways to either route supply or identify suppliers in places where there can be a tax advantage, so they can flow goods in a way that helps reduce costs.” In KPMG’s survey, 64% said they were considering indirect taxes, government incentives, and transfer pricing when making supply chain location decisions.

But the regulatory and tax ramifications are extremely complex. For instance, a manufacturer may move to Mexico to take advantage of the United States–Mexico–Canada free trade agreement but might still have to pay tariffs on components coming from China, says Doug Zuvich, tax partner at KPMG. There are many different rules that apply to specific components or subsystems. “You really have to get down to what it is you are manufacturing, where the raw materials come from, and what laws and tariffs apply,” he says.

The equation will become even more difficult amid growing global isolationism. “Across the board, the role government plays in [the] supply chain is [to take] a heavy hand today, and I imagine that will continue to be the reality for many years,” says Rollman. “Jurisdictions are being very protective of their supplies.”

What to know: Make sure you have the expertise and take the time to consider the implications of local taxes, regulations, and tariffs. According to the KPMG study, the top challenges of nearshoring are the difficulty of taking advantage of free trade arrangements and government incentives, and the failure to factor tax into the decision-making process.

“Not many companies have all the skills in-house to consider all the tax areas—tariffs, withholding, incentives, transfer prices,” says Zuvich. Even when they do, they don’t always include these experts when deciding where to source from or build in a particular region.

In addition, many taxes are now done digitally, especially in Latin America, which forces real-time compliance, notes Niren Saldanha, tax partner at KPMG. To do that well requires not just technology but also an understanding of regulations at both federal and local levels. “Companies need professionals who have a combination of tax and technology skills,” he notes. (For more on this topic, see our article on complying with local rules and regulations in global markets.)

The ability to quickly adapt to new regulatory changes and government actions has also become essential. When the first Trump administration placed tariffs on Chinese imports eight years ago, many manufacturers shifted production from China to Mexico. Now, the focus of tariffs has shifted to Mexico and Canada.

One strategy that companies implemented during COVID-19 could be helpful, says Accenture’s Roger: maintaining a network of subcontractors across regions. For example, “If you’ve built good subcontracting relationships as part of your operation, you might be able to quickly set up a subcontractor in another part of Latin America if Colombia suddenly has tariffs,” he says.

4. Pull together isolated technology initiatives

So far, the effect of technology investments in supply chains has been limited. While two-thirds of McKinsey survey respondents said they’d made progress in implementing advanced planning and scheduling systems, only 10% had completed those projects. The survey found that overall investment in supply chain digitalization has leveled off and that supply chain visibility is still limited. McKinsey respondents said they were improving their understanding of tier-one suppliers, but the share that said they had good visibility into deeper tiers fell seven percentage points from 2023 to 2024. This was the second annual decline. Visibility beyond tier one fell 19% from 2022 to 2023.

In the EY survey, 22% of supply chain leaders said digital connectivity to suppliers was still limited to sharing spreadsheets and e-mails, and fewer than half said their organizations were in the early stages of implementing digital tools and cloud-based platforms for various supply chain functions.

Another alarming finding in EY’s survey: executives may have lost confidence in technology. “Skepticism on the part of the C-suite could reflect past supply chain technology implementations that failed to deliver promised productivity benefits or were scaled back due to challenges during implementation,” says the report. “These challenges are exacerbated with emerging technologies, such as generative AI.” Other EY research found that 62% of supply chain and operations executives had paused to reassess GenAI projects, with only 7% completing implementation.

What to know: What’s needed is more integration rather than more technology, says EY’s Aggarwal. Although companies have digitized quite a few processes, information remains siloed. “You may have 15 different applications supporting your supply chain,” he says, “but a lot of that data is not effectively utilized because it is confined in a specific functional system or is not connected with other functions across the supply chain, even when a data lake is used.”

Accenture’s research noted the same problem. In its survey, nearly 60% of executives said their supply chain’s technology foundation involved a combination of legacy tools, multiple enterprise resource planning options, and general-purpose productivity tools such as spreadsheets and database management systems.

In addition, notes Aggarwal, managers within departments may make decisions based only on their own goals. For example, a logistics manager may choose the lowest-cost transportation option regardless of how a slower transit time may affect other parts of the business. Businesses need a unified system that brings all data together to give a complete view of the supply chain, allowing the company to weigh various factors to balance resiliency, risk, costs, and margins, he adds.

Striking the resilience-cost balance

In this uncertain economy, companies must watch costs closely. At the same time, they should not neglect supply chain resilience. “It’s not just about lowering costs in your supply chain, but also [about] how quickly you can react, and reacting faster than others,” says Roger. “That’s competitive advantage.”

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